Auditor-General's Report

AUDITOR-GENERAL'S REPORT

In committee.

(Continued from 30 October 2012.)

The CHAIR: We will now proceed to the examination of the Auditor-General's Report in relation to the Treasurer, Minister for Workers Rehabilitation, Minister for Defence Industries, Minister for Veterans' Affairs for 30 minutes. I remind members that the committee is in normal session, so any questions have to be asked by members on their feet and all questions must be directly referenced to the Auditor-General's Report. The member for Davenport.

The Hon. I.F. EVANS: Treasurer, I am referring to Part C: State Finances and Related Matters, page 77 under 9.4.2: Non-financial sector liabilities. The Auditor-General reports that borrowings have decreased due mainly to a change in presentations of borrowings in 2011-12, which are now presented net of the Treasurer's deposits with SAFA, which is an entity outside of the NFPS. Can the Treasurer explain why there has been a change of presentation, and what impact that has on the presentation of the net debt?

The Hon. J.J. SNELLING: I am advised that this has no impact on net debt. External users were misunderstanding the nature of our borrowings. I am advised that this gives a more accurate representation of our borrowings detail net of the deposits that we hold. Those deposits are held on behalf of various agencies. As I said, it has no impact on our net debt.

The Hon. I.F. EVANS: I am assuming that this change in presentation is reflected in the 2012-13 Budget Statement, because it occurred in 2011-12, so I am assuming this year's Budget Statement reflects the change. Can you confirm that, when you are calculating the interest paid for purposes of credit rating, the figure that is used is the borrowing figure and not the net debt figure?

The Hon. J.J. SNELLING: I am advised for gross expenses, that is, the interest component of that is the interest on our entire borrowings. For net expenses, our interest expenses are netted off. I am not sure if the member for Davenport is getting at the discussions we have been having about the effect of the change in the credit rating on the interest we pay on our borrowings. I am not sure if that is what he is getting at. If he is, the figures I have been talking about on the effect on our borrowings would be on that gross expenses part of the ledger.

The Hon. I.F. EVANS: In Budget Paper 3, the borrowings decrease from $10 billion to around $8.9 billion from the 2011 to 2012 year. That is the year of the change. So the borrowings are reflected as reducing even though our net debt is increasing. What I am trying to find out is whether the new way of presenting the borrowings, which reflects a reduction in the borrowings, impacts on the calculation of the interest that we pay on our credit rating.

In other words, has Treasury changed the presentation so that, when the opposition asks the question, 'What is the cost of the downgrade of the credit rating?', the calculation is done on a lower borrowing figure rather than a higher borrowing figure? Or is the Treasurer telling me that, when he answers the questions about the impact on the credit rating, the figure is calculated on the total whole-of-government debt figure?

The Hon. J.J. SNELLING: The change in the presentation has not impacted on the net interest that is represented in the papers. When the member for Davenport has asked me questions in the past about the impact of the change in the credit rating and I have given some rough idea about what the impact is likely to be, I am talking about the interest that we pay on our total borrowings not netted off.

The Hon. I.F. EVANS: This is my point: you just advised the house that the previous answer was based on the total borrowings not netted off. The Auditor-General now advises us that the borrowings have decreased because, due to a change in presentation, borrowings from 2011-12 are now presented net. So, they are netted off. Therefore, the calculation will be on a lower figure. Is that not now true, Treasurer? If I ask you the question today, 'What is the impact of the reduction in credit rating?', you will be getting advice from Treasury and they will be using a lower borrowing figure because of the change in presentation. If nothing else had changed, you would be using a lower borrowing figure because of the change in presentation. You have just said that one was not net of deposits and the Auditor-General says it is net of deposits.

The Hon. J.J. SNELLING: No, that is not correct.

The Hon. I.F. EVANS: What did the Treasurer mean? The previous answer he gave was 'not net of deposits'. What did the Treasurer mean by that? Was it borrowings not net of deposits?

The Hon. J.J. SNELLING: The member for Davenport in the past has asked me questions about the impact of the credit downgrade on our interest payments. When I have given him the answers to that, I have talked about the impact of the credit downgrade on our interest payments, independent of any change in net borrowings. So, I have confined what I have given in my answers entirely to the impact on our interest payments, as a result of the move from AAA to AA+—those are the answers I have given him.

I think the member for Davenport is trying to suggest that the government has been a bit tricky when talking about interest payments and that the interest payments have not increased by as much because of a change in the presentation in the budget papers. I think that is what he is getting at and that is just not correct. The answers I have given to him about the expected impact on our borrowings are entirely just from the change in the credit rating, not because of any other factors.

The simple fact is that our interest payments have decreased substantially. The yields on our bonds are less with the AA and AA+ credit ratings that we have today than they were as recently as 12 months ago with a AAA credit rating. They have declined because of other factors, but it is not correct to suggest that the government is somehow being tricky in any way in trying to present the impact on our interest from the credit downgrade because of other factors.

The Hon. I.F. EVANS: Is there any reason why the change in presentation was not noted in the budget papers? Under the chart, there is a series of footnotes that talk about structural breaks in the presentation of data. This structural break in the presentation of data is not noted in the budget papers, but the Auditor-General has picked it up. I am just wondering why that structural break would not be reported in the budget papers.

The Hon. J.J. SNELLING: It was apparently an oversight, I am advised.

The Hon. I.F. Evans: Not a $1 billion oversight is it, by chance?

The Hon. J.J. SNELLING: I wish it was.

The Hon. I.F. EVANS: Treasurer, I will move on to a different topic at Part C, page 6. The Auditor-General refers to the surplus in the year 2015-16 being $512 million, which would be the highest of any year since the 2003-04 year, or a 13-year period. Given the Treasurer has told the house and the public generally through media interviews that revenues are under pressure, how confident is the Treasurer of the predicted $15 million deficit in 2014-15 and then the surplus in 2015-16? Do you think those figures will still hold?

The Hon. J.J. SNELLING: There is one thing I can be sure of and that is that the numbers will change. We have seen in the short time I have been Treasurer that our revenues across the forward estimates will, in one year, decline by $2.8 billion, and I suspect that they will change extensively over the next four years. So, no, I cannot predict or give you any sort of guarantee that there will be a surplus of that size.

The government has made one of its fiscal targets, though, the achievement of a budget surplus by the end of the forward estimates period, and that is something that I will do everything in my power to make sure is achieved, but, when you have revenues bouncing around the way they have in recent years, no, I could not give any guarantee that we would have a $500 million-odd net operating balance surplus in that year.

The Hon. I.F. EVANS: Part C, page 19, where the Auditor-General refers to the cost of the credit rating, and the downgrade of the credit rating, can you advise what the impact is on SA Water and other government trading entities in relation to the cost of guarantee fees? Does the downgrade and the credit rating have an impact on their guarantee fees and, if so, what is the increased cost of those entities and, if there is an impact of revenue on the budget, what is that impact?

The Hon. J.J. SNELLING: If our interest costs go up, and the costs that SA Water would have to pay in interest on their borrowings if they were out in the markets stay stable, then the fee that we charge SA Water you would expect to reduce. However, it is done on an average basis over a number years and so they have not been recalibrated. But over time, if the interest cost to government increases, by the government going out and conducting those borrowings on behalf of SA Water, and what it would have cost SA Water if they were going out to the market to borrow those funds was stable, or declined, the guarantee fees that they pay you would expect to reduce.

The Hon. I.F. EVANS: Treasurer, on page 19, again of Part C, the Auditor-General refers to the government's reduction of another 1,000 FTEs, of which roughly 300 are before the election and 700, in round numbers, are after the election. The government has committed to a no getting rid of the no forced redundancy policy at the election, and I am just wondering why then you need to continue to offer TVSPs after the election as part of this package if the no forced redundancy commitment is, as publicly stated, going to be eroded away come election day?

The Hon. J.J. SNELLING: Simply because even if you are exiting someone, for want of a euphemism, you still have to make a redundancy payment. They are still under the awards, there still are provisions for redundancy, so you still have to pay them out. The other thing is that under what we have proposed to be the policy after the next election, there is a 12 month period, so someone who is a redeployee will have essentially 12 months to find alternative work within the public sector and, if they do not, then they will be able to be exited.

However, of course, normally it would be in the interests of the government, particularly if we are trying to reduce our public sector numbers still to offer up front a TVSP and encourage them to take that and not sit around, unless they are very confident of finding alternative work for that 12 months.

The Hon. I.F. EVANS: So is the TVSP on offer more generous or less generous than what they would be paid on average under the act?

The Hon. J.J. SNELLING: Yes, it would be more generous to give them an incentive to go earlier.

The Hon. I.F. EVANS: Page 19 refers to the health department being over 400 people above cap and since the Auditor-General's Report, the government has announced the cutting of various health jobs. Can you advise the house the number of jobs in Health to go each financial year across the forward estimates?

The Hon. J.J. SNELLING: I can get those from the Minister for Health. I do not have those handy. I am happy to get back to the member.

The Hon. I.F. EVANS: In relation to the health cap, still on page 19, even after the cuts that have been announced in the last week, Health will still remain above its cap. Is it a requirement of the government that Health make further cuts to bring its FTE number under the cabinet-imposed cap?

The Hon. J.J. SNELLING: I think the health minister has already said there are still savings that need to be achieved that are yet to be identified, so Treasury is working with the department of health to identify how those extra savings will be achieved. That will include FTE reductions as well.

The Hon. I.F. EVANS: To clarify: is it the intention through those savings measures to bring Health back to within the Treasury-prescribed cap?

The Hon. J.J. SNELLING: Yes, that is certainly what we will be working towards achieving.

The Hon. I.F. EVANS: Page 25 of Part C talks about the revenue growth that is predicted within the budget and the Auditor-General raises the point that the revenue growth going forward is higher than in any year's actual growth over the last nine years. Given that we have had, certainly in the early days of the government, significant revenue growth, I am just wondering on what basis the government has budgeted for the highest revenue growth or any year actual growth in the forward estimates greater than any year of the last nine years. On what basis is the government budgeting revenue?

The Hon. J.J. SNELLING: In the Auditor-General's remarks he is talking about the financial years 2014-15 and 2015-16 but, if you take into account the entire forward estimates period, the revenue growth forecast is about average compared to the life of this government. The sort of revenue growth we are expecting is akin and, in fact, he makes that point. He says:

Comparison with past experience shows that the 2012-13 Budget estimates for key revenue lines are consistent with past average experience but revenue performance is sensitive to economic activity.

He is talking about those two particular years. The reason for the revenue growth that we are predicting in those particular years is the washing out of the HFE implications of the grants we have got. Because the government has been remarkably successful in attracting Infrastructure Australia grants and other commonwealth grants, those have been offset through HFE because there is a three-year lag and that has to wash through the Commonwealth Grants Commission process. As those wash through, we expect our relativity to increase and we are basing the revenue growth principally on that expectation.

The Hon. I.F. EVANS: Now that the Treasurer has raised that point, I go to Part C at pages 24 and 25. The Treasurer has previously raised this issue of the fact that the commonwealth has given us a capital allocation over and above our per capita share; therefore, we were penalised in our GST receipts in the recent years and, again, to gain a GST benefit bonus in future years.

Can the Treasurer provide for the forward estimates a list of each project where we have received above our per capita share—so, the list of projects that are captured by this particular mechanism—and, across the forward estimates, the extra GST you think you will gain as a result of the change in relativities? The Treasurer has already told the estimates committee that three of them were the desal plant, the Southern Expressway and the South Road superway, so the Treasurer must have a list—somewhere within Treasury, there would be a list. So, if you could give me that breakdown, thanks.

The Hon. J.J. SNELLING: I am more than happy to provide those numbers. I do not think the Southern Expressway received any commonwealth funding; I might be wrong there, but certainly, the South Road superway was a project which attracted funding—

The Hon. I.F. Evans: Sorry, it was the Seaford railway line.

The Hon. J.J. SNELLING: —the Seaford rail extension, the money for the desalination plant, and we have received funding from the commonwealth for other rail projects, just to mention a few. We have received substantially more, but as to what those projects are and the effect they have had, I am more than happy to get Treasury to break that down and provide it to the member for Davenport.

The Hon. I.F. EVANS: On page 1553, in relation to ForestrySA, it talks about the level of assets being transferred as part of the sale. Can the Treasurer advise the house of the total book value of the assets being transferred as a result of the forestry sale, which the Treasurer handled?

The Hon. J.J. SNELLING: As the Auditor-General points out, the standing timber, which is essentially what is being transferred to the Campbell Group, the book valuation is $593,666,000. The value of the land, which did reside with ForestrySA and has now come into the general government sector—it is basically mine, and I lease it to the Campbell Group—is $438,182,000. That has come into the general government sector out of ForestrySA, and resides in there.

The Hon. I.F. EVANS: The figures the Treasurer refers to are on page 1553. In reference to that page, is the $579,000 of assets classified as held for sale? Are they also being transferred? Also, are the water licences (worth $325,000) also being transferred as part of the sale?

The Hon. J.J. Snelling: Sorry, the water licence and what else?

The Hon. I.F. EVANS: On page 1553 of Volume 5, it says there are water licences worth $325,000. These are 'Assets classified as held for distribution to owner', $325,000—Water licences, and 'Assets classified as held for sale', $575,000. Are those two lines also being transferred to the new owners as part of the sale?

The Hon. J.J. SNELLING: They have been transferred to the general government sector but, no, they have not been sold.

The Hon. I.F. EVANS: Has the line, 'Assets classified as held for sale', $756,000, which is footnote 12 on the same page, been transferred as part of the sale?

The Hon. J.J. SNELLING: I will double-check just for safety but, no. I will double-check and get back to the member for Davenport and confirm it. It includes things like footings, trading stock, that sort of stuff. That is remaining with ForestrySA.

The Hon. I.F. EVANS: Can the minister then also provide an answer as to why it is being reported in the Auditor-General's Report as 'for sale'. If it is not being sold to the Campbell Group, who are we selling it to? Treasurer, my last question relates to Part A, Audit overview, page 8. To the best of our research, for the first time the Auditor-General has included a paragraph, which is the second paragraph in the concluding comments section where he refers to:

Certificates cannot be honestly and responsibly given if the certifiers are aware that information is that knowingly misstated.

So, is the Treasurer or Treasury aware of any certificates not being issued or any certificates being knowingly misstated?

The Hon. J.J. SNELLING: I can answer the earlier question while Treasury is advising me. The answer to the earlier question is: the reason why those things are for sale is because part of it will be trading stock and trading stock is generally for sale. My advice is that we are not aware of any.

The CHAIR: The time for the examination of the Auditor-General's Report in relation to the Treasurer has expired.

Progress reported; committee to sit again.