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House of Assembly - Fifty-First Parliament, Third Session (51-3)
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Auditor-General's Report

AUDITOR-GENERAL'S REPORT

In committee.

(Continued from 28 October 2008. Page 642.)

The CHAIR: Minister for the River Murray and the Minister for Water Security: I remind everyone that questions must be about the Auditor-General's Report and must be referenced. In the earlier session a lot of questions were estimates questions, not questions about the Auditor-General's Report, and the minister has no obligation to answer questions that are not about the Auditor-General's Report. Normal committee procedures apply, with members standing, unlike estimates committee. The member for MacKillop.

Mr WILLIAMS: By way of reference, I will quote the page number first. I refer to the Auditor-General's Report at page 1,211. It is noted that the total income since 2004 has risen by $167 million, and the commentary notes the main factors have been an increase in water consumption up to November 2006, and revenue increase since that date due to price increases and growth in customer numbers. Can the minister provide figures giving annual water usage for the financial years 2003-04 through to 2007-08 inclusive, broken down into monthly and yearly consumption; and, similarly, the customer numbers as at the end of June for each of those years, broken down into country customers and metropolitan Adelaide customers, with a further breakdown into domestic and business customers?

The Hon. K.A. MAYWALD: I thank the member for his question. I will take the question on notice and provide that information to the house.

Mr WILLIAMS: I now refer to page 1,212. Comment is made that:

The biggest impact on the corporation's profit has been various drought and water initiatives causing higher operating costs.

It is noted that the new rebate schemes have contributed to a $16.2 million escalation in the 'other expenses' category. The SA Water website lists that rebates are available for six initiatives. How many applications have been made for each of these initiatives? How many applications have been successful? What has been the cost for each initiative? What is the estimated water saving from each initiative?

The six initiatives are: up to $30 for a low-flow showerhead; $150 for retro-fitting a dual-flush toilet; $200 for the purchase of a new water-efficient washing machine; a $50 rebate when you spend $150 or more on water-efficient garden goods; $100 for a home water audit, including the installation of up to two low-flow showerheads; and between $200 and $1,000 towards the cost of purchasing and plumbing a rainwater tank.

The Hon. K.A. MAYWALD: I thank the member again for his question. It is a very detailed question, and we will get a very detailed answer and bring back the numbers for the member. I would also offer to the opposition that we can provide those figures to them on a regular basis.

Mr WILLIAMS: Under those schemes, why, to qualify for the rebate for a dual-flush toilet, do householders have to replace the whole toilet suite, including the pan, rather than just the cistern, given that it is the cistern that provides the water saving?

The CHAIR: Minister, that is extending the Auditor-General's reach a little. Do you wish to make any comment?

The Hon. K.A. MAYWALD: I will answer the question, but it really has little reference to the Auditor-General's Report. It is actually a question on SA Water policy probably more suited to question time; however, I will answer the question. The reason why the pan and the cistern must be changed is because not all pans are suitable for dual-flush operations. It is a requirement under the guidelines that both be replaced so that they will work effectively and as designed.

Mr WILLIAMS: With regard to the same reference on the rebates. Minister, when questioned on Adelaide radio some months ago, you indicated that these rebates were under review. Have any changes been made to the rebates since the beginning of the new water year?

The CHAIR: That is a question more appropriate to question time, a question on notice or anything else. It does not seem to be related to the Auditor-General's Report at all, that I can see, unless you can provide me with a more exact reference. Minister, do you wish to make any comment?

Mr WILLIAMS: On page 1,212 in the comments regarding operating results, the Auditor-General states:

The biggest impact on the corporation's profit has been various drought and water security initiatives causing higher operating costs.

This is one of the water security—

The CHAIR: That is extending the bow a little—a very long bow; beyond Robin Hood's reach, but it may be within the reach of the Minister for the River Murray and Water Security.

The Hon. K.A. MAYWALD: Obviously, there are very few questions on the Auditor-General's Report, so I will indulge the member opposite by answering the question. The rebates are under review. We have not made any changes just recently, but they continue to be under review.

Mr WILLIAMS: I now turn to page 1,239. Under 33: Commitments, operating leases commitments not provided for in the financial report show an increase in leasing commitments into the future of some $18 million, an escalation, if we take the four-year period—and I can only assume that that period in the table provided in the report starts from 1 July 2009—of some $8 million, which equates to $2 million per year over that four-year period, or equivalent to a 33 per cent increase in lease payments. Can the minister confirm that this is the additional lease cost from moving the corporation's office space to the building known as Victoria Square 1?

The Hon. K.A. MAYWALD: Yes, there are some impacts there, because Bolivar and Thebarton are owned by SA Water, of course. Whilst we are moving staff from Bolivar and Thebarton, we are still required to have some staff at Thebarton for a short time. Then we will be returning that significant parcel of land to parkland, of course, and the staff who were previously operating at Bolivar will be moving into Vic Square. So, that is largely the impact on the lease lines in the budget.

Mr WILLIAMS: Same reference. The Auditor noted that the lease has escalation clauses and no purchase options. Can the minister explain the escalation clauses in the lease?

The Hon. K.A. MAYWALD: I am advised that they are just normal commercial lease arrangements.

Mr WILLIAMS: I understand that the Public Works Committee was told, during its hearings on this project, that the building was due for completion on 15 September and that penalty clauses were in the contract in case of building delays. Given that SA Water did not have access to the building by that date and, I understand, will now not attempt to occupy the new laboratories prior to the summer when water quality testing becomes very important, will those penalty clauses be invoked and what will be the financial impacts?

The Hon. K.A. MAYWALD: I am advised that there are no penalties related to the September date. In actual fact, it was due for completion in December; however, with negotiations between SA Water and the developer, things were going ahead reasonably well and it looked like we could anticipate a September moving in date. However, there were some complications, I understand, largely as a complication of ICT issues, and the September date was delayed, and we are now currently moving into the building as we speak. We will still meet the occupation date prior to December, so no penalties will be applied.

Mr WILLIAMS: I refer to page 1,211 where the Auditor-General states that the electricity costs have decreased by $8.3 million between years ending '07 and '08. Given that one of the major factors affecting electricity consumption is the pumping of water from the River Murray, will the minister provide the volume of water that was pumped from the Murray for each of the water years from 2002-03 to 2007-08 inclusive?

The Hon. K.A. MAYWALD: Yes; I can provide that information to the member. I do not have that to hand, as it was not the subject of audit, but I will certainly provide that information to the member.

Mr WILLIAMS: I refer to page 1,213. Given that plant and equipment revaluations contributed $481 million to the valuation of non-current assets combined with the government's objective of maintaining a debt to total assets ratio within the range of 15 to 24 per cent, does this simply mean that SA Water is locked into providing cash to the government just on the effect of inflation on its substantial asset base?

The Hon. K.A. MAYWALD: No.

Mr WILLIAMS: So, why does SA Water then justify that it is keeping within the bound of 15 to 25 per cent and saying that is okay when the contributions keep going up and up, and they say they are within the bounds of that parameter because of the revaluation?

The Hon. K.A. MAYWALD: I think where the member gets confused is between the dividend and SA Water's capital investment. The dividend comes through to government net of the requirement of SA Water to meet its capital expenditure and also to meet its costs of borrowings. Let me say that 15 per cent to 25 per cent asset or gearing ratio is a reasonable gearing—it is even less than a lot of the other corporations around Australia—and it is a target that the government has set for borrowings for the corporation. However, the dividend is calculated once the cost of those borrowings has been included and also any capital expenditure for that year has been accounted for, so I think the member gets confused with what the dividend actually means. The dividend was actually established under the previous government and in accordance with the NWI requirements for a public utility.

Mr WILLIAMS: I will just correct the minister: the dividend payments being paid by SA Water were set under the current Treasurer's regime, where it is set at 95 per cent of retained earnings or profit after tax.

The Hon. K.A. MAYWALD: The method was set.

Mr WILLIAMS: No, you said the dividend was set. I will ask a further question on the same topic, particularly given the minister's answer to the previous question. Can the minister explain why it is that the Auditor-General continues to point out that the corporation is forced to borrow to pay the level of dividend and capital required by the government? He points out that the increase in borrowings has risen significantly in 2007-08 when commenting on this requirement to meet the payments to Treasury.

The Hon. K.A. MAYWALD: Can you identify where the Auditor-General actually says that?

Mr WILLIAMS: On page 1,215.

The Hon. K.A. MAYWALD: Which part? Could you please quote it?

Mr WILLIAMS: At the top of the page, it states:

In four of the last five years net cash generated from operating activities was sufficient to cover the net cash used in investing activities (ie essentially the purchase of property, plant and equipment, etc), but insufficient to pay the level of dividend and return of capital required by the Department of Treasury and Finance. To meet its payment obligations to government and finance its capital works programs the Corporation's net increase in borrowings has risen significantly in 2007 and 2008.

The Hon. K.A. MAYWALD: The reason why the borrowings have increased is not to do with the payment of the dividend: it is simply because the capital investment has increased substantially. So, the finance required to undertake the very significant investment in capital works that SA Water is undertaking, of course, does have costs associated with it. Those costs are covered by SA Water's operational budget and the dividend is then paid net on that.

Mr WILLIAMS: Basically, the dividend is paid—

The Hon. K.A. Maywald interjecting:

Mr WILLIAMS: No, SA Water is considerably different. Basically, the dividend is paid because of the substantial write-downs for depreciation in SA Water. I refer to page 1,211. What the Auditor-General has been concerned about, for at least six years, and he keeps going back and making the same comment year in, year out—

The Hon. K.A. Maywald interjecting:

Mr WILLIAMS: He is not concerned because he has not qualified it? He keeps raising it, not because it is illegal but because he is concerned about it, minister. On page 1,211, it is noted that financial costs increased by $11.6 million due to increased borrowings and increased interest rates. Can that figure be broken down into individual components; that is, how much of it is because of increased borrowings and how much is because of increased interest rates?

The CHAIR: Minister, do you want to get any of the repartee across the table onto the record? It seems to me that some points did not get on to the record.

The Hon. K.A. MAYWALD: I would like to refer to the previous question, and I thank you for the opportunity, Madam Chair. On page 1,215, the comments made by the Auditor-General are observations, not concerns. They are observations that we are increasing our capital expenditure, which is a very good thing, because we have some water security issues that we are actually dealing with at the moment.

To actually finance that, we need to increase our borrowings and, when you increase your borrowings, you actually increase your operational costs. In increasing operational costs, you also need to increase the prices to cover those costs, which is what we have done. The dividend that is then returned to the shareholders—as with any corporation—is net of those operating costs. So, I think it should be made very clear that that is not a concern, but an observation of the Auditor-General. Going back to the question regarding the $11.6 million due to increased borrowings and increased interest rates, I believe that we can get a breakdown of that for the member.

Mr WILLIAMS: Referring to the same page, employment expenses increased by some $12.6 million due to salary escalation and new appointments for drought and water security initiatives. How many new employees were employed during the year? Were those employed to manage the drought initiatives employed on a permanent basis and, if not, how much of the total increased employment would come within that category?

The Hon. K.A. MAYWALD: Once again, I will return to the house with the information to answer the detail of that question.

Mr WILLIAMS: I refer to pages 1,215 and 1,216 under the heading of 'Adelaide Desalination Project'. The Auditor-General notes that cabinet approved the Design, Build, Operate and Maintain (DBOM) procurement method in June 2008 and that, in July 2008, cabinet approved an acceleration of the procurement with an estimated cost of $1.374 billion. Does this indicate that final decisions have been made? I ask the question because the transparency statement tabled during the last sitting week noted that SA Water financial modelling will be reviewed by an independent consultant prior to the 2009-10 pricing process, which I presume is happening about now.

The Hon. K.A. MAYWALD: Each year, the government undertakes a review of our pricing and our capital investment and makes a decision in relation to pricing for the following financial year, taking into account cabinet decisions in relation to any capital investment, including the acceleration of the Adelaide desalination plant. The figure of $1,374 million is, of course, still an estimate. We are going through the process at the moment of working with three consortia that have been shortlisted to actually determine the final design of the project, and more accurate costings will be available once that process has concluded. The government undertakes a review of pricing on an annual basis, and we have done so again this year. That information will be available by the 7 December gazettal date.

Mr WILLIAMS: I refer to page 1,220, which notes that a reclassification of expenditure has seen an $11.8 million transfer from the salaries and employee benefits expense line to the services and supplies expense line. Can the minister explain what caused that to happen?

The Hon. K.A. MAYWALD: I do not have the details of that to hand. We will get that information for the honourable member.

Mr PEDERICK: Volume V, page 1,498 mentions the Living Murray initiative, which establishes arrangements for recovery and management of water to address the declining health of the River Murray system and DWLBC contributions for 2007-08. Given the government's recent actions to purchase water for irrigators through the Critical Water Needs Package, and given that the health of the whole river system is paramount to the long-term survival of the river and irrigators alike, does the government intend to purchase water specifically for the preservation of the Lower Lakes until at least next winter?

The Hon. K.A. MAYWALD: Two different issues are involved there. One is the Living Murray purchase of water, which, of course, is purchasing permanent entitlements: it is not purchasing annual allocations. The Living Murray is about the longer term reduction in the amount of water that is available to be extracted in the river on entitlements. So, we are purchasing permanent entitlements. That water will be transferred to the Living Murray licence and will be managed in accordance with the Living Murray business plans. Of course, one icon site under the Living Murray is the Lower Lakes and Coorong; so, they will definitely be beneficiaries of water purchased through that water mechanism.

The critical water allocation is an underwriting of potential future improvements in the water resource for keeping permanent plantings alive, and that critical water allocation will be reduced as improvements arise. What it is doing is providing for irrigators now a fixed minimum knowledge of what water they will get. If there is a shortfall in the improved resource to cover off on that, by the end of the water year the government has guaranteed that we will step into the market and purchase that water. So we are not actually purchasing water specifically for that purpose at this point, but we may need to.

We are monitoring the environment of the Lower Lakes very closely. As I reported to the federal Senate inquiry on the Lower Lakes and Coorong, there could be a shortfall of around 60 gigalitres between when I reported to that inquiry and the end of the year. We are monitoring that on a monthly basis and, as the situation improves or decreases, we are re-throwing that modelling and understanding how much water might be needed. At this stage, we believe we will get through to next winter without having to purchase water to supplement the flows into the Lower Lakes.

Of course, other things are impacting upon water in the Lower Lakes: localised rainfall, and localised inflows from the Finniss, Currency Creek and other inflows. Also, this year a number of wetlands have been closed for the last water year and also for this water year and that is benefiting the Lower Lakes also. At this stage, we are continuing to monitor that. We do not believe it will be necessary to purchase water on the temporary market at this stage to supplement the levels in the Lower Lakes to get us through to next winter, but we are monitoring it very closely.

Mr PEDERICK: I refer to Volume V, page 1,490, 'Communication and audit matters—controlled environment'. When will the financial management framework, which was commenced by DWLBC in 2006, be fully developed, documented and implemented? It was noted in the 2006-07 report that audit has been reporting for a number of years that there were many weaknesses in DWLBC's controlled environment, including both transactional and higher level monitoring controls. The current report also notes that initial implementation time frames had not been met and significant work remains to be done.

The Hon. K.A. MAYWALD: This is an area on which DWLBC has been working with the Auditor-General. DWLBC believes that it will have substantially resolved the issue by 30 June 2008. However, in some programs ongoing improvements to systems will be implemented. Substantially, the issues raised by the Auditor-General should be in place by 30 June.

Mr PEDERICK: I refer to Volume V, page 1,491, 'Financial Management Reporting'. Are monthly financial reports to the committee and detailed explanations of actual to budget variations now regularly available to enable proper governance of the department? If not, when will they be?

The Hon. K.A. MAYWALD: The answer is yes. DWLBC is continuing to enhance this process. Further revisions to the reporting format and content have been effected during the first quarter of 2008-09. Progressive enhancements to both the content and presentation of both high level information (for example, using traffic signal form reports) and provision of detailed information (for example, enhanced fund reporting information) are expected during of the course of the year and will be made in consultation with the department's newly constituted finance committee. It is anticipated that the finance committee will initiate further changes to the content and the format of reports to improve their effectiveness. Improvements in the quality of variance explanations will be tied to the revised business processes to be implemented as part of the revised budgetary control framework; and that will also include the clarification of roles and responsibilities and accountability for the completion of relevant processes and revised rules for transfer pricing between divisions.

Mr PEDERICK: I refer to Volume IV, page 1,208, 'Communication of audit matters—rebate schemes'. In relation to dot point 2, have the inconsistencies in the processing of applications and payments for rebates been resolved? Has it resulted in any lost income that was budgeted?

The Hon. K.A. MAYWALD: I do not believe it has resulted in any lost income, but there were some inconsistencies in relation to the rebate scheme earlier on. I am advised that those issues have been resolved.

Mr PEDERICK: I refer to Volume V, page 1,491, 'Corporate governance—risk management'. When will the risk management framework be finalised and endorsed?

The Hon. K.A. MAYWALD: I am advised that the work will be completed by December 2008.

The CHAIR: The time has expired. I now call on the Minister for Environment and Conservation, Minister for Early Childhood Development, Minister for Aboriginal Affairs and Reconciliation and Minister Assisting the Premier in Cabinet Business and Public Sector Management.

Mr WILLIAMS: For the minister's benefit, if he wants to, we can be orderly and start off with environment and heritage and I will ask some questions. I refer to Volume II, page 343, 'Crown Land Perpetual Leases'. The Auditor-General's Report shows that there has been a net revenue gain of $6 million. Will the minister inform the committee what annual savings are expected to accrue from changes which should deliver administrative savings?

The Hon. J.W. WEATHERILL: As I understand what the member is asking is that, given that a number of leases have been freeholded, that implies there will be less of an administrative burden and therefore there will be some savings. I do not know whether the premise of the question is correct, but we do not have that figure to hand. However, we will undertake that work and respond to that question.

Mr WILLIAMS: Yes, that was the premise behind the question. It is a fair while since the project started and I think it would be relevant if the committee was updated on that. I now refer to page 341. There is a table showing the non-current assets and some comments. It appears that the non-current assets have been declining steadily from $332 million in value in 2006 to $303 million at the end of 2008. It is noted in the commentary that land, buildings and improvements in park infrastructure are the main non-current assets. Does the declining asset value indicate a lack of ongoing maintenance keeping such improvements in good order? If not, what is the explanation for the substantial decline in value?

The Hon. J.W. WEATHERILL: I think the effect on the balance sheet really arises out of a network asset review. During the 2007-08 reporting period, the department performed a review of network assets valued at less than $5,000 to determine whether they had been treated in accordance with accounting policy framework 3. The purpose of the review was to identify assets which had fundamentally different characteristics to the network assets to which they were attached and, when grouped together, did they have a value which represented a significant percentage of the department's total assets? The review identified 6,929 capitalised network assets which did not meet this criteria. As a result, these assets were expensed, with the adjustment being applied retrospectively and according to the accounting standard 108.

Mr WILLIAMS: At page 363, note 24 refers to non-current assets held for sale and states that the government holds 104 parcels of land that are identified as surplus. It appears the total value, from my reading of the document, is $950,000, which is very close to the value of $951,000 for last year. My questions are as follows. How many of the 104 represent the same parcels of land that were in this category the year before? What value of properties has been sold in the 2007-08 year? Where do the proceeds from such sales end up (that is, do they end up within the department, or are they returned to consolidated account)?

The Hon. J.W. WEATHERILL: We would have to do the precise exercise, but I think we only sold one property so it is likely that they represent the same sort of cohort. Sadly, the money goes back to consolidated revenue.

Mr WILLIAMS: I refer to page 370. Notes (vii) and (x) talk about 'transfer of revenue (war services)' and 'war services leases amortisation'. Can the minister provide the house with a small explanation of what on earth is going on there?

The Hon. J.W. WEATHERILL: Apparently, as far back as World War I, commonwealth leases were given to servicemen and an income stream that was rent, essentially, was provided to the commonwealth from those leases. We used to collect that on behalf of the commonwealth. I think what we have done in an administrative tidy-up is purchase those leases and, therefore, purchase the income stream. Hence, there have been the corresponding adjustments to our accounts.

Mr WILLIAMS: I now refer to page 372, where board and committee members are listed. The government, as I understand it, has a stated policy of significantly reducing the number of state government boards. There appear to be 13 boards with 83 members, with the number of members growing from 78 in the previous year. Can the minister explain how many boards, if any, have been disbanded within the Department for Environment and Heritage during the term of the current government?

The CHAIR: I do not think that relates to this Auditor-General's Report, except with a long bow. We will see whether the minister can help.

The Hon. J.W. WEATHERILL: I do not have that information with me, but what I can say is there was a very dramatic reduction in the number of boards in the environment and heritage area as a consequence of the NRM process, which collapsed numerous boards into single entities, so there has been a substantial rationalisation within this portfolio. The more recent efforts I will have to take on notice.

Mr WILLIAMS: It is interesting that none of the NRM boards is listed on that page, minister, and I think there are six or eight of those. I refer to page 386 and the EPA. The contributions to Zero Waste grew from $5.5 million to virtually $11.5 million, due to a 109 per cent rise in the waste levy rates. Are the financial statements of Zero Waste SA incorporated into the financial statements of the EPA as presented in this document, or are they a separate set of financial statements?

The Hon. J.W. WEATHERILL: As I understand it, while they derive their income from the levy that comes through the EPA, they are not included within the EPA report, they are contained within the environment and heritage consolidated accounts.

Mr WILLIAMS: I understand that there is a statutory obligation for Zero Waste SA to provide an annual report to you by the end of September. Can you tell the house when that might be tabled in the parliament?

The Hon. J.W. WEATHERILL: The usual statutory period is a number of sitting days after it has been delivered, and I will certainly be complying with that.

Mr WILLIAMS: Just on that, and I pray the indulgence of the chair with this question: with regard to Zero Waste and the substantial increase in the dumping licence fees, has the government been apprised of any increase in illegal dumping of waste due to those escalating costs? I ask the question principally because I have noticed a substantial increase in illegal dumping on back roads near to where I live, and particularly in forest reserves.

The CHAIR: Unfortunately, member for MacKillop, craving my indulgence does not make it in order, but I will invite the minister to respond, if he wishes to.

The Hon. J.W. WEATHERILL: I do not have that information; it is not of a financial nature. I do not have advice with me that can assist me in answering that question.

Mr WILLIAMS: This question, I think, is within the bounds of where I am allowed to go. Has any monies, other than those collected from the waste levy, been provided by the government to the waste resources fund operated by Zero Waste, and has there been any offset in decline in government support for the fund as a result of the levy contribution increasing so substantially?

The Hon. J.W. WEATHERILL: I am advised that there are no other sources of revenue that go into that fund, except, perhaps, for the interest that may be generated through the holding of some of those resources.

Mr WILLIAMS: I refer to page 390. At the bottom of that page there is a note referring to financial arrangements. The Auditor-General refers to a memorandum of understanding between the EPA and the Department for Environment and Heritage, noting that there are a number of services provided from the department to the EPA which have not been recognised in the financial statements. Is it possible for the minister to give a brief account of that MOU or, indeed, undertake to provide the opposition with a copy of that MOU?

The Hon. J.W. WEATHERILL: I understand that they are in the nature of corporate services, such as IT and infrastructure. Certainly, we can provide you with a list of those.

Mr WILLIAMS: There is some confusion, at least in my mind, and there has been for some time, over the minister's responsibility for the Department of Water, Land and Biodiversity Conservation. Some areas, I understand, report to the minister for water resources and some report to yourself. I will try to ask questions which I think you have responsibility for, and I am sure I will be told if you do not.

I refer to Volume V of the Auditor-General's Report, page 1,490, 'Control environment'. The Auditor points out that he has raised concerns for at least two years now, and notes the implementation of a financial management framework process, commenced in 2006, is still not complete. Can the minister explain the tardiness in completing this work?

The Hon. J.W. WEATHERILL: I understand that minister Maywald spoke briefly to this matter, but I can supplement that by saying that the financial management improvement project was conceived to run over a number of years; it was never meant to be a short-term project. In order to provide a greater focus for these initiatives, which involved a range of improvements to internal controls and the controlled environment, they were brought together under that project during the second half of 2007-08.

The project coordinates several improvement initiatives, including systems development, redefinition of governance, and a series of business improvement projects and initiatives. It will seek to more effectively integrate a number of these initiatives and thereby maximise their impact and effectiveness. Key outcomes arising from that process during 2007-08 include: better definition of control frameworks; the identification of financial compliance program; and readiness for the operation of new Treasurer's Instruction requirements from July this year. Other outcomes include a major revision of high-level departmental governance committee and reporting and monitoring structures.

These measures are progressive and ongoing and will further strengthen other systems and business process improvements such as the implementation of the new budget management information system planned for 2008-09.

Mr WILLIAMS: You mentioned the budget control system at the end of your answer to that question. I assume that those projects will go to answer the other queries raised, certainly in my mind, by the Auditor-General's comments with regard to grant management and project management.

The Hon. J.W. WEATHERILL: Yes.

Mr WILLIAMS: I refer to page 1,492. The Auditor notes two instances where contracts were entered into without the appropriate authorisation. Can you detail the contracts and any potential risk exposure?

The Hon. J.W. WEATHERILL: One was a fit-out contract for one of the levels within one of the buildings that is occupied by the department. There was an exceedance of the delegation for the relevant officer. There were no other issues except for that. The other was a contract for a consultancy. Once again, there was no issue with the contract for the consultancy, but the delegation was not adequate to have approved that particular contract.

Mr WILLIAMS: The second part of the question is: was there any risk exposure as a result?

The Hon. J.W. WEATHERILL: No.

Mr WILLIAMS: I hope the minister appreciates that, when these things are noted and we read them without any background information, the questions become obvious. I refer to page 1,493 regarding employee benefits and expenses which have increased by $6 million, and the Auditor-General notes that there was some impact due to enterprise bargaining and some impact due to an increase in department staff establishment. Can the minister inform the house of the total increase in staff numbers in the department which contributed to the $6 million increase?

The Hon. J.W. WEATHERILL: I do not have the actual figures but most of the increase would have come through the major increases associated with the grant funded programs under with the National Water Initiative, but we can supply you with the numbers.

Mr WILLIAMS: Thank you, minister. If you liaise with the Minister for Water Security, you might only have to supply that information once. On page 1,494 the bar graph shows that the total expenses in 2005 were $131.7 million, increasing to $142.3 million in 2008, with the percentage of total expenses attributed to employee benefits rising from 26.5 per cent to 31.9 per cent in that period. Indeed, by my arithmetic, if we discount the $7.4 million which was expended on water licence purchases, which I assume is not an ongoing cost but rather an ad hoc-type purchase, the employee expenses would come to 33.7 per cent of the department's total expenditure. Is the government not concerned about the inordinate growth in the number of employees within the budget?

The Hon. J.W. WEATHERILL: I am struggling with that question. Which table are you referring to?

Mr WILLIAMS: At the top of the page, the bar graph shows the total expenditure but it is broken up into various areas, and I have simply worked out the employee benefits expenses as a percentage of the total. It has grown substantially, according to my arithmetic, from some 26.5 per cent to 31.9 per cent.

The Hon. J.W. WEATHERILL: I think we get back to the commonwealth grant funding to assist with National Water Initiative matters. I do not think we have any concern that growth in employee expenses is being directed at projects that are highly valuable in the water area. That is where the great bulk of the growth has occurred. The bulk of the growth has not occurred in the administrative grades but rather in that project work which has been funded by the commonwealth.

Mr WILLIAMS: I refer to page 1,495 of the Auditor-General's Report. It is noted that the department holds cash reserves of $60.4 million at 30 June 2008—a doubling from the $30.9 million held 12 months earlier—for projects committed to but yet to be progressed or completed. Can the minister provide a list of those projects and an estimated date of completion?

The Hon. J.W. WEATHERILL: We can supply you with details of the projects that are underway, but the essential increase comes from a number of projects, which include projects funded through the Living Murray initiative, which often has interstate contributions. Those contributions obviously are paid over, but not necessarily when the money needs to be expended, so they are held in our cash reserves in that fashion. We will certainly supply the details about the nature of those projects presently underway.

The CHAIR: The member for Morphett.

Dr McFETRIDGE: Thank you, Madam Chair. I think Ms Saunders is in the chamber with the other advisers. I congratulate Ms Saunders on her appointment as the head of the department. Minister, my question refers to Part B, Volume III, No. 9 on page 827. I will roll two bits into one question to save time. The Aboriginal Community Essential Services and Assistance Grant has been reduced by $352,000 between 2007-08. Also, the Anangu Pitjantjatjara Operating Grant has been reduced by $124,000. Can I have some background on what is going on there?

The Hon. J.W. WEATHERILL: We do not have the precise breakdown, but these do fluctuate from year to year. They are largely commonwealth dollars, although I am advised that there are some state dollars in relation to the Aboriginal community assistance grant. So, there will be fluctuations over the course of financial years. I do not have the precise details about what comprises each of the topics of the grants but, if the member wants more detail, we can certainly provide that.

The CHAIR: The advisers on Aboriginal affairs can depart and if the advisers on cabinet business and public sector management can become available. The member for Goyder.

Mr GRIFFITHS: This is a bit of a tricky one. Public sector management is mentioned throughout the Auditor-General's Report quite often, but not as it relates to a specific line, so I hope that the minister is prepared to accept this. I note page 42 of Part C, where it refers to caps being put in place. The caps were actually commenced in 2007-08. I am advised that agency reporting on the caps was reduced from monthly to quarterly. Can the minister give me a reason for that?

The Hon. J.W. WEATHERILL: This matter is squarely within the Treasurer's area. Treasury and Finance manages the cap process. It is a financial management tool. Questions about that matter should be directed to the Treasurer.

The CHAIR: Given that he is next, that is fortunate.

Mr GRIFFITHS: That should help. I have one further question which I hope the minister is able to answer and which relates to public sector management. Is the minister able to confirm when he intends to introduce the public sector management bill?

The Hon. J.W. WEATHERILL: Very soon.

The CHAIR: If everyone is happy for that to be concluded, it will give us a little time for the changeover. We move to the Deputy Premier, Treasurer, Minister for Industry and Trade and Minister for Federal/State Relations.

Mr HAMILTON-SMITH: I start with the issue of FTE caps and refer to Part C, page 42 of the Auditor-General's Report, which makes reference to the reporting of agency FTE caps which commenced in 2007-08. Why was agency reporting of caps reduced from monthly to quarterly, and how is the whole process of managing FTE caps going within government?

The Hon. K.O. FOLEY: I am advised that the departments of health and DFEEST are reporting monthly because we are not satisfied with the quality of their reporting. We are working with them to get better quality reporting. The other agencies are reporting exceptionally well, and we are quite happy for them to report on a quarterly basis. We reward those that perform and we closely monitor those that do not. However, in fairness to those agencies, I am probably giving Health a little more latitude than my Under Treasurer would, but, because of the nature of the employment of such a large number of nurses, doctors and support staff (many of whom are employed on a part-time basis and many of whom are consulting/contracting), it is clearly logistically a very difficult exercise for that department. I am probably less sympathetic towards TAFE, but, again, it has a similar problem. In relation to TAFE, there are a number of colleges and campuses. I guess, if I am in a generous mood, that is probably why those two agencies have been less accurate with their reporting.

Mr HAMILTON-SMITH: I refer to the same page and part of the report. The health department was 925 FTEs over its cap. In addition to the departments that you have mentioned, Transport, Energy and Infrastructure was also over its cap. Is the cap system working? You have made the point that it is complex. What are the weaknesses in the cap management system and what action is the government taking to remedy it so that we know how many public servants we have?

The Hon. K.O. FOLEY: The important point is that once we see agencies go over their cap we seek reasons for it. The additional problem with Health and TAFE is that it is seasonal. In relation to TAFE, it depends on the type of course and the type of work and to get accurate numbers is difficult when it is a seasonal workforce. The same applies to Health. When winter comes there is a heavy spike in admissions to hospitals and Health has to bring in a lot of people. It has been a problem that has bedevilled governments of all persuasions for many years. We have had a lot contrasting numbers on employment. It is good theatre for an opposition—and I do not blame you for that—but it is a hard task to get exact readings on employment. We are the first government that has attempted to put a more robust system in place, but it is less than perfect.

Mr HAMILTON-SMITH: I refer to page 34, Part C. The bottom half of the page highlights the real terms growth in employee expenses across the period charted. It talks about the FTE numbers and the management of those employee expenses. I have been through the government media releases and added up from the public statements how many extra FTEs are doctors, nurses, teachers and police—which comes to a figure of 4,400. Well over 14,000 extra public servants have been hired. What is the accurate figure for teachers, doctors, nurses and police as distinct from other employees of government? What is the wage cost of these extra non-core public servants in 2008-09?

The Hon. K.O. FOLEY: I do not think you can call public servants non-core public servants. What the leader is suggesting is that if you are not a teacher, police officer, doctor or nurse you are non-core. I think that comment would invite a reaction from the Public Service Association and, indeed, from public servants themselves. We do not go out hiring public servants for the sake of it. We hire public servants because we need them. The fact is that we have doubled the amount of expenditure on core public services. When you do that you need to hire associated employees. I do not think that the opposition leader is suggesting that he would cut 10,000 public servants from the payroll.

Mr HAMILTON-SMITH: I refer to page 34, Part C. The Auditor-General notes that the employee expenses line in the forward estimates does not include all enterprise agreements for renegotiation. Those agreements that were not settled at the time of the Auditor-General's Report—and I note some of them have now been settled—were salaried medical officers, teachers, TAFE lecturers, metal and building trades employees, and Metropolitan Fire Service firefighters. Will you tell us what the estimated total for all negotiations will be to expenses in 2008-09?

The Hon. K.O. FOLEY: I cannot believe that you honestly expect me to answer that. Are you suggesting that I should say how much we think we will end up settling with the teachers? I know the member for Unley wants us to give the teachers 21 per cent. We are still negotiating with the teachers. We are still negotiating with the firefighters and we have other EBs to negotiate. I will not flag publicly or privately what my provisioning is for those wage outcomes. To do so, would be highly irresponsible and unprecedented.

Mr HAMILTON-SMITH: What about the ones you have already agreed—salaried medical officers? Are there any to which you have agreed which you can now reveal?

The Hon. K.O. FOLEY: That will be released in the Mid-Year Budget Review.

Mr HAMILTON-SMITH: Moving to Part C, page 17, the Auditor-General notes that in 2007-08 expenses were up by $342 million compared to budget, of which $159 million were employee expenses. How much of that $159 million was due to unbudgeted extra employees and how much was due to unbudgeted extra wages paid to existing employees?

The Hon. K.O. FOLEY: In between budgets, the government, through the cabinet process and the ERCC (Expenditure Review Committee of Cabinet) authorises expenditure through the course of a given year after a budget has come down. We do not allow and we have proper control mechanisms in place that we do not have unbudgeted expenditure, but every government—and yours was no different—makes decisions through the course of the year to authorise extra expenditure and, largely, that would involve the health area. The member may recall that the health area is just a nonstop demand centre for expenditure, and throughout the course of any given year we authorise more health money in most years, as we do with other projects, and that is where that expenditure has come from. But it is not unbudgeted money: it is money that has been authorised correctly through the cabinet process.

Mr HAMILTON-SMITH: Moving on to the subject of PPPs. I refer to page 37 of Part C. In response to a question asked on 23 September 2008 about the prisoners project funding providers, the Treasurer said that they will be originating the debt from other providers and they will not be carrying the full debt on their balance sheet. These are debt financed projects. Could you provide the committee with some more information about how the super school PPPs will be debt funded? I note your comments this afternoon in question time, but given that one of the outcomes of the financial crisis at the moment is the freezing of funds between lenders, how do you see the PPP super school projects proceeding from here?

The Hon. K.O. FOLEY: I cannot provide that information because we are in the evaluation process of choosing a successful consortia to undertake that project, but clearly one of the things we will be doing in the criteria for choosing them is to ensure they can provide the debt finance, the equity, or what other finance methods they are using. Obviously, we will want to have confirmation that the finance is available, but obviously once those tenders are let, we will give the information about the successful consortia.

Mr HAMILTON-SMITH: I move to the ICT program, page 15 of Part A. In the past, the Auditor-General has recommended that ministers should receive regular status reports on the progress of major ICT projects. How often does the Treasurer receive status reports on the costs of major projects and why does there continue to be blow-outs in several of these projects referred to in this Auditor-General's Report and previous reports?

The Hon. K.O. FOLEY: I am advised that there is an ICT oversight committee that is chaired by Jim Hallion, the chief executive officer of the department of transport. That reports to minister Conlon in his capacity as Minister for Infrastructure and, if and when there are issues that I need to be made aware of, I am made aware of them.

Why do ICT projects run over cost? Crikey, if you could answer that one you would be a bloody hot-shot consultant out there saving people a lot of money. I remember the Y2K issue. I would love to dig up some old Treasury minutes on the Y2K. I wish I could answer why ICT projects seem to go massively over cost. It is a very good question and I wish I could answer it, but that is the ICT world.

Mr HAMILTON-SMITH: By way of a supplementary question to that answer, the Treasurer has informed the house previously of claimed savings from the ICT program—or direct savings. Does the government have a process to measure indirect expenses from this project? For example, the breaking up of the single provider, the EDS contract, has required growth in the number of people to manage those separate projects now within DTEI; and there have been other costs and some of these projects have run over budget. Does the government have a mechanism in place to measure the whole-of-government cost of this new ICT program and compare it to the cost to government when we had a single provider in the form of EDS? Is there some broader device to measure whether or not this is working?

The Hon. K.O. FOLEY: I doubt it, but I can say this: I advise the leader to be very circumspect in how he approaches the value of the EDS contract dating back to 1997. Probably, I am as knowledgeable about that project, if not more knowledgeable, than anyone in the house, because I carried that project from opposition. It was a shocker: there is no question about that. It was an absolute shocker of a contract. There was great merit in the argument at the time, not accepted by the former government, that you really should not put all your eggs in one basket because you are hostage to one provider and have no internal competition; and it really is a flawed model. Tragically for the government of the day, it seemed a good idea at the time, but it proved to be a very unsatisfactory contract.

What we have done is break up the parcels of ICT work and put out a competitive bid. We have a number of providers now with serious internal competition. The competition of the bidding process has given us a good array of providers which has locked in $30 million a year in savings, and we have apportioned that across agencies. There is a little bit of controversy internally because Treasury had to put down a mandated number as to what the expenses would be in each agency for ICT services and apportion the savings across each agency. But it is a very real saving and we now have a much better quality contract and, if we have employed a few more people or have a few more people overseeing that process than we had with the EDS contract, it is money extremely well spent.

Mr HAMILTON-SMITH: I refer to page 46 of Part C. The Auditor-General refers to WorkCover and notes that he is now the statutory auditor of WorkCover but that at the time of his report WorkCover's full year financial results were not available. According to its annual report, WorkCover's unfunded liability was $984 million at 30 June 2008 using a discount rate of 6.5 per cent. Given further losses to its invested fund and a deterioration of the discount rate to 4.9 per cent, which was confirmed by the Under Treasurer on 27 October, what is WorkCover's present unfunded liability position at 30 September—at the last measure by Treasury and for the most recent period available?

The Hon. K.O. FOLEY: Treasury does not measure the unfunded liability of a statutory corporation. A statutory corporation reports its unfunded liability according to its accounting requirements. The corporation reports yearly on its unfunded liability. It provides quarterly reports to the Minister for Industrial Relations and, no doubt, we see those in Treasury. The Under Treasurer sits on the board of WorkCover.

I will make a number of important points about WorkCover. First, a reform of the legislation, as our package, was to actually put the Auditor-General into WorkCover. There has always been a tension between WorkCover and government over who should audit the books. Let us remember that the employer's association—and employers have a particular interest in the function of that organisation, and the board has predominantly been a private sector board—has liked to employ its own auditors. That has now changed. The unfunded liability of WorkCover is being impacted on in exactly the same way as the unfunded superannuation liability of government is being impacted on, and in exactly the same way as the funding of the Motor Accident Commission has been reduced.

We are in the midst of the greatest financial crisis the world has seen since the Great Depression. We have been all through this. We have seen massive wealth destruction in the globe. I think the equity markets were down 20 per cent in October. Since this crash occurred, equity markets are down 40 per cent. We have had massive wealth destruction. WorkCover can only invest its money in investment markets; it has nowhere else to put it. Even putting it in the bank as cash came with a degree of risk.

WorkCover has suffered, as other organisations have suffered, as individual personal wealth has suffered from those that have seen losses on stock markets, and that has affected its unfunded liability. On top of that, you have this issue of a reduction in the discount rate, which increases the unfunded liability. They are measures and outcomes beyond the control of a board or government and they are issues for which we have to accept the reality of the market conditions.

The fundamental issue about WorkCover is the structural integrity of the organisation, in terms of the quality of its management and the legislation from which it operates under as to whether or not that is a sound piece of law that enables the organisation to operate as close to commercially as a government organisation can. On the best advice that we have been given, through the debates in this parliament and the reluctance of the opposition—although finally on board to pass that law—over time that law should see a rebalancing of the organisation and, ultimately, the reduction and elimination of an unfunded liability over a period of time.

Unfortunately for the organisation, and I daresay for all those who have an interest in WorkCover, the financial crisis could not have come at a worse time. For WorkCover, it cannot win either way, but at least now we have a sustainable and good glide path for a return to a very healthy position for WorkCover, and we hope that occurs as quickly as possible.

Mr HAMILTON-SMITH: Getting back to the question: is the Treasurer informed quarterly of the unfunded liability position of WorkCover? If that is so, what was the last quarterly update on that liability position, because it would have been as at the end of September, I imagine. What is the current state of that unfunded liability?

The CHAIR: We are doing this from the Auditor-General's Report, which states that the Auditor-General has not yet commenced auditing WorkCover. I think the question cannot be in order, but I do invite the Treasurer to make a comment.

The Hon. K.O. FOLEY: From recollection, I do not receive a quarterly formal report. The Under Treasurer sits on the board and we talk often about WorkCover. The Under Treasurer will always bring to my attention matters that he feels I need to know about. I have just released the annual report showing the performance of WorkCover.

I can confidently say to you that, between the release of that report and the date in that report to the end of September, or the end of October, or mark-to-market results today, it is worse, because the situation has deteriorated. I do not have a number exactly. It would be of little value, even if we had a number, because those numbers would be jumping and gyrating around the place like nobody's business. I have Andrew Blaskett with me here. Andrew gives me advice on the unfunded liability of our superannuation. Every day is a different story. The markets are just gyrating like anyone's business, and, until we get a more settled scenario, those numbers are not meaningless, but there could be one number today, and it will be a better number tomorrow and a worse number the next day.

Mr HAMILTON-SMITH: Same page reference, page 46 of Part C, that deals with WorkCover liabilities. Can the Treasurer tell us the current state of the government's own WorkCover scheme for its own employees, that was reported publicly at a $400 million unfunded liability, quite separate to the WorkCover scheme, because you are self-insured employer? What is the current unfunded liability position of that scheme?

The Hon. K.O. FOLEY: We do not pay ourselves. Simply, we pay these liabilities as and when they fall due. They are not affected by the equity market; it is just a matter of the performance of injury rates in enterprises. But, of course, it will get much better because the new law changes will also apply to public servants.

Mr HAMILTON-SMITH: Page 2 of Part A makes reference to the Motor Accident Commission. The Treasurer told the house on 15 October that the Motor Accident Commission had breached its solvency provisions to a level of 98.4 per cent; that is, the commission's assets are not enough to meet accident claims when they fall due. What action is the Treasurer taking in response to the Auditor-General's finding? How do you intend to fund such claims, and what are you doing to increase the solvency level?

The Hon. K.O. FOLEY: Well, that is a misrepresentation. The suggestion that the Motor Accident Commission cannot meet its commitments to injured motor accident victims and/or property damage is just not true. It is an incredibly solvent enterprise. I wish WorkCover was at 98.5 per cent.

One of the great lessons that I have learnt in this job—and I have learnt a lot—is that, when I came into office because your government did not have a proper eye to properly managing these enterprises and took an easy political option, you did not pass on the increases that were recommended anywhere near the level by the compulsory third party committee that advises governments. So, when I came into office I am not sure what the solvency of that enterprise was, but I knew I had to make it more solvent, and I also agreed that we would increase the solvency ratio to a much higher level. We put a prudential margin in place, and, in the end, through passing on those increases and having a decent prudential margin in there, we got solvency up to in excess of 160 per cent.

There were two years there where a third party committee recommended decreasing premiums. The odd thing is that, in hindsight, I should not have agreed to that; we should have maybe just increased it by inflation to give us a bit more of a buffer. But, I think I am right in saying that the situation there was that I would have had to direct the Motor Accident Commission to not decrease its premiums on the advice given. I took the view politically that we would look a stingy lot if we were directing an entity to lift its prices when the independent authority was saying decrease.

But, we got solvency up to 160 per cent. I would be lying if I did not say it, but there were times when I was scratching my head thinking: why are we being purer than pure and having such an incredibly well funded entity? The reason is that sometimes the world turns in on itself and suddenly the bottom of the crash that we have had has meant that we have run down all that prudential margin and we are about 98 per cent to 100 per cent solvent, and that is why you have prudential margins and higher levels of solvency.

So, quite the opposite to what you are saying, the Motor Accident Commission, through government action and government policy, has supported a very good management team. Under the former general manager, Geoff Vogt, the former board members and, in particular, now under Roger Cook's chairmanship, the board is going very well. I am not recommending we do anything more in terms of the solvency of that entity other than accepting reality, and we will see a return to health in our equity markets and investment markets at some point and that will greatly improve the solvency of the entity.

In fact, the situation has improved a bit. I am advised that, as at 30 June—so, I am not sure what numbers I was referring to before—we were at 101.5 per cent of the required level of sufficient solvency, and we are at 112.8 per cent against the additional solvency target of 160 per cent. As at 30 June 2007, we were 167.3 per cent solvent; at this point in time, we are 112.8 per cent solvent. Whatever number you look at, the entity has sufficient funds in terms of its solvency but, as an entity that trades, it has more than sufficient cash flow to meet its commitments as and when required.

Mr GRIFFITHS: I refer to page 16 of Part A and the RevenueSA taxation revenue management system. The report notes that the original allocation was $22.6 million towards this project. It has been increased now to near $46 million. In a question in the house on 16 October, in part of your answer you talked about how the program is intended to bring in an extra $19 million in revenue, and that was justification for it all. I am interested to find out, though, from what taxation categories you think this revenue leakage comes.

The Hon. K.O. FOLEY: We should all be worried out there now; this is a pretty good system. Yes. Has it cost more? Yes. Why? Because it is IT and I wish it did not. But it does give us a very significant payback—$19 million a year conservative. It is spread across all tax-paying categories. Under the old system, we would look at Steve Griffiths, for example, and we would see what is your land tax liability, but we could not look at what your payroll tax liability might be if you were in business—in fact, payroll tax or any of the other categories—because it was individually identified.

Under this system, we pull up Steve Griffiths, for example, and we can work out what you should owe us on every tax category for which you, as an enterprise, would be liable. It is much more efficient and transparent. We have much better access to data and we group that data much better which enables the Tax Commissioner and his staff to chase down what has been leakage.

I can take your question a bit further because I have put this to Treasury on a number of occasions. We have and continue to employ more revenue collection officers (taxation officers, compliance officers) and they have a terrific revenue payback—about $800,000 an officer. I said, 'Let's employ 500 of them!' But there is a point of diminishing return and we have not actually reached diminishing return. I keep getting told that, at some point, there is a diminishing return, but for each and every budget I put pressure on the Under Treasurer and the tax office to see whether or not we should be employing more tax collectors.

I think I have even asked this question: do we ever have an estimate as to what tax the system does not collect that it should collect? The fantastic Yes, Minister response is, 'Yes, we have tried to get an estimate, but it is very hard. We have a target of what we think is reasonably achievable, but we will not share it with you.'

Mr GRIFFITHS: Is there a firm date as to when it is intended to implement the system, Treasurer? Is it in 2010-11; is that in place?

The Hon. K.O. FOLEY: We are signing contracts soon, and then work will start on building this thing. We are confident that it will be operational at the earliest opportunity—in the foreseeable future—once we build this machine. The Under Treasurer has also indicated that we indicate what our target is for revenue collection in our portfolio statements. What we do not, of course, have is what we think the extra bit might be out there, but we are working on it as best we can. I was trying to think of the name of that computer in one of those films.

Mr GRIFFITHS: RISTEC.

The Hon. K.O. FOLEY: No. What was the computer in 2001: A Space Odyssey?

The CHAIR: HAL.

The Hon. K.O. FOLEY: HAL, yes.

Mr HAMILTON-SMITH: I refer to page 42 of Part C, which observes that the data quality provided to agencies, as part of budget monitoring and reporting, was 'consistently rated as medium and low on a high to low scale' by DTF. The Auditor-General has also identified this deficiency in previous years. Can the Treasurer explain what action has been taken over the years to remedy this poor quality of information?

The Hon. K.O. FOLEY: My guess is that he has reported on that in previous years and, I guess if I went looking, there would be a fair number of years when you were in office that the previous Auditor-General probably said much the same thing. We have significantly improved the quality of reporting. The Under Treasurer has written to the chief executive stressing the importance of monthly monitoring, including the requirement to accurately profile the budget, accurately project end-of-year outcomes and provide good quality variation explanations.

Portfolio chief executives within Treasury meet regularly with senior finance officers. We have put a lot of IT improvements in place. We are getting nowhere near a common platform across government. We have common ledger systems and chartered accounts. I think the government accounting branch has asked me, over many budgets, to get some money to improve the quality of IT reporting, and I keep knocking them back.

When we came into office, it was a pretty poor system. I remember that health was only reporting at the end of the year on end-of-year outcomes on health. We have greatly improved the quality of our monitoring. Could it be better? Absolutely—and we will continue to strive to improve it.

Mr GRIFFITHS: I refer to page 5 of Part C, at the top of that page—'Estimated position for 2007-08 and forward years'. The budget presented this year forecasts growth within the South Australian economy at 2.75 per cent. I am aware that the federal government has put out the position that the Reserve Bank has put out. What is the now revised-down figure for South Australia?

The Hon. K.O. FOLEY: Let us remember that the Reserve Bank publishes a growth number that does not take into account what affects an easing or tightening, I guess, of what monetary policy may do to its settings. I am not exactly sure how it comes up with that number, but it comes up with a number minus any adjustment to monetary policy at that point. That is the explanation for the difference between the RBA's number and the Treasury number, I assume. Numbers have been put to me by Treasury; I do not want to raise them publicly until such time as the Mid-Year Budget Review when we can settle on those numbers.

A number of meetings are occurring before then. State Labor treasurers, at least, are meeting on Friday. We have a meeting of the Treasury Ministerial Council and Loan Council late November followed by a COAG on a Saturday, which will be a hoot. We will have a better idea of just what is happening after those meetings in relation to the financial arrangements with the commonwealth, and we will be in a better position to understand where the economy is heading.

Mr GRIFFITHS: I pick up on one point. In his answer, the Treasurer said that Labor treasurers are meeting. Is Troy Buswell part of that discussion?

The Hon. K.O. FOLEY: Troy Buswell is being consulted on it, but Labor treasurers have agreed to meet and have a discussion. Troy is aware of it and is being kept fully briefed on it. I am sure that, when you were in government and given that your party was in national office, you would have talked amongst yourselves about how you wished to deal with something.

Mr GRIFFITHS: Can we go to the area of industry and trade, Madam Chair?

The CHAIR: Yes. Can we change over advisers, please. Thank you for your cooperation, members on my left.

Mr GRIFFITHS: I refer to page 1,291, Part B, Volume V. I am interested in the scope of activities of the Olympic Dam Task Force. Can the minister give me some information on that, please.

The Hon. K.O. FOLEY: The Olympic Dam Task Force is working on in excess of 50 projects right across government. In terms of the approval processes and planning that is required, the necessary decision making for government, assisting BHP in the construction of the EIS documentation and then ultimately the implementation of that EIS, Bruce Carter (Chairman of the Economic Development Board) is chair of that committee. Paul Case, a highly experienced and credentialled senior executive of government, has been given the task of overseeing this process. I recently returned with Paul and Bruce from Escondida where we had a look at what is happening in Chile.

That task force, whilst it is costing us a few million dollars a year, is a very valuable resource. This project will be transformational for this economy. It will be the greatest mining development ever undertaken anywhere in the world. It will result in tens of thousands of jobs, a significant lift in our gross state product, and it will provide for a renaissance in terms of the Upper North, around the cities of Whyalla, Port Augusta and Port Pirie. Roxby Downs itself will double in size.

I had a 1½ hour meeting recently with Marius Kloppers, Graham Hunt and his people and the project is on track. The board will make its final decision. Nothing is 100 per cent in this business, but I am confident and they appear very confident with their progress to date. However, we need to underpin and support that. Ultimately, we may need to alter the indenture. We have not decided exactly the way forward, but there will be a role for this parliament, and we look forward to the whole-hearted support of the opposition.

Mr GRIFFITHS: I refer to page 1,315, Part B, Volume I, the Economic Development Board. It has been a focus for the government to use the skills of those people. I note in the Auditor-General's Report a few resignations and new appointments. What are some of the reasons for the changes that have occurred in the last 12 months?

The Hon. K.O. FOLEY: The chairman, David Simmons, at his request did not want to continue. He had been on the board since day one. David did an outstanding job. Bruce Carter accepted the government's offer to chair the board. There were a couple of other changes. It has been a very stable board, but we needed to renew the board and bring in some extra skills. Wayne Jackson wished to resign, as did John Bastian and Fiona Roche. They had done a fair stint. We put in new people. Justin Milne is the head of BigPond. Leanna Read is the head of a biotech company. Helen Nugent—who is well known to us all—is one of Australia's top directors. Michael Hickinbotham, Dr Michael Keating and Kevin Osborn are new additions. They are a terrific bunch of business and community people who give the government a tremendous resource. It is a model that any future government should adopt. Should those opposite be successful at the next election, I would advise them strongly to retain the structure we have in place.

Mr GRIFFITHS: I refer to page 1,316, Part B. I am interested in the Export Council and the fact that its role was removed recently. What are the plans in place to replace that body?

The Hon. K.O. FOLEY: We are talking with Business SA about it. The Export Council was a recommendation of the EDB some years ago. It has not worked as well as we would have liked it to work. It has been difficult to get the results out of the board that could have been achieved. We have a lot of advisory boards in government. I think the model we put in place was not the best model, so we are now working with business to come up with a better proposition than that which we have had in the past.

Mr GRIFFITHS: Given the commitment of the state's Strategic Plan to try to triple exports by 2013, a body with that focus is important for the state. Is there a time frame when you anticipate the new export council being established?

The Hon. K.O. FOLEY: The export performance of our companies is not dependent upon what we may or may not get in terms of advice from an export council. The Economic Development Board gives us significant grunt when it comes to advice on business in general. We think Business SA with its strong links to the state's exporters and businesses is better placed to lead the way forward for an export council. We are having those discussions.

As a result of my experience working at Austrade for a while, and, more importantly, working for former ministers—and now as a minister—my view is that big and even medium to larger enterprises do not need a lot of help, if any, from government really. They know how to export to and access the markets. The big commodity companies and the big agricultural enterprises know how to export. Where we can give some value-add as a state is at the small to medium enterprise level, where it is difficult to map or identify the real effect one is having with those companies. We put a lot of effort and resource into that, be it through CITCSA or our own operations and offices overseas. I think to the extent we can we have a good handle on assisting business in our state with export. I think we can do it a little better and, as a result of involving Business SA, we will come up with a good model. I hope to have it sorted out in the near future.


[Sitting extended beyond 18:00 on motion of Hon. J.D. Hill]


Mr HAMILTON-SMITH: I refer to page 810 of Volume III, noting the Auditor-General's observation that expenses for DPC have increased from $250 million in 2006-07 to just short of $370 million in 2007-08—a significant increase in employee benefits or numbers, but also in grants and subsidies and in supplies and services. Can the Premier explain in more detail?

The Hon. M.D. RANN: That is a good question, and I can understand how it has caused confusion. We got rid of a number of departments and brought them under DPC. At one stage DAIS, Industrial Relations, SafeWork SA, Aboriginal Affairs, Arts, and Recreation and Sport all came over. Recreation and Sport has now gone out. In an effort to improve efficiency, my department was massively expanded under Warren McCann's leadership, not because we were expanding the department but because we subsumed a whole range of other administrative functions, and therefore it looks as though there has been a big increase in the number of people, but those people were employed anyway and basically changed hats.

For financial accounting and reporting purposes a number of business units were transferred from the Department of Administrative and Information Services to the Department of Premier and Cabinet, effective from 1 January 2007. As a result of this transfer the 2006-07 financial results for the department reflect six months of operating activity for the former DAIS business units. The 2007-08 financial results of the department reflect a full year of operations for these units, so what appears to be a big jump up is just an extra six months of having DAIS incorporated. In from DAIS, to make that clear, SafeWork SA, the Industrial Court, Government Publishing, State Records, the Office for Recreation and Sport, the Public Sector Workforce Division, Injury Management Services, Placement Services, and minister Wright's office all shifted under DPC, which followed bringing in Arts, Aboriginal Affairs and some other areas also.

Mr HAMILTON-SMITH: On the same reference, given this growth in the size of the Department of Premier and Cabinet, is the Premier completely happy from an audit viewpoint that the structure of departments in relation to the number of ministers and the cross-reference of ministers where you have some departments answering to two or three ministers, is simple and effective or is further simplification and streamlining required?

The Hon. M.D. RANN: From an audit viewpoint they audit departments—whole departments—but from time immemorial and in other states the move, including under the previous government of which the leader was a minister, to the setting up of super departments was to stop the proliferation of administrative units and, rather than having a whole series of different payrolls, IRs and HRs, it was about consolidation. I think it works quite well. I was not briefed by recreation and sport. They briefed their minister. There are some areas where I was jointly briefed because of my role in terms of Social Inclusion. So, whilst the Aboriginal Affairs group reported to Jay Weatherill, because of my interest in Social Inclusion and whole of government matters relating to COAG, they also reported to me, but we have not found a problem with that.

Mr HAMILTON-SMITH: I refer to Part B, Volume III, page 825. I note that 10 people in DPC are paid in excess of $240,000: four at the level of $240,000 plus and one at the level of $289,000. Could you explain to the committee who those 10 appointments are who are paid in excess of $240,000?

The Hon. M.D. RANN: I can get you a breakdown with the individual names. You could look at a number of very senior people such as the director of the cabinet office and obviously the head of the department, and a number of other areas, including people who have been brought in, but I will get you a specific definitive list so that we can put a name next to each person.

Mr GRIFFITHS: The shadow minister, the member for Heysen, apologises for not being here but a very serious fall on Saturday while bushwalking has made it a little difficult for her to get around. She is the walking wounded at the moment.

The Hon. J.D. Hill interjecting:

Mr GRIFFITHS: Yes, I know that she has been for X-rays. The one question that she did express to me relates to Part B, Volume I, page 70. The Auditor-General commented that the main areas for improvement were the need to develop and enhance policies and procedures and the control framework for the acquisition and loan of artwork. She is particularly concerned about the fact that there must be many art pieces on public display which are owned by private individuals and the need to ensure that an accountability system is in place that will give every guarantee necessary to ensure that those properties will still be able to be identified as being owned privately. Can you provide some information on what is occurring to improve that system?

The Hon. M.D. RANN: I must say there is an outstanding board of the Art Gallery, which is headed by Michael Abbott QC and which has basically a range of business leaders on it. The Art Gallery controls the acquisition of works of art and loans of works of art through a range of procedures and documentation. These procedures have been in operation for many years and all decisions are formally documented through board agendas and minutes. The Art Gallery noted the recommendations of the Auditor-General and will implement recommendations for improved policies and procedures. I understand that the Auditor-General is satisfied with the Art Gallery's response.

Over the years, we have done pretty well. Just to give you an idea, the Art Gallery has over 20 Rodin sculptures. Obviously, there is the Rodin Museum in Paris which has a large number of Rodin sculptures, but there is one in Philadelphia in Pennsylvania which is a separate Rodin Museum and which is separate from the Philadelphia Museum of Art, yet that probably only has a few more Rodins than we have. That was basically the result of an extraordinary loan. It is one of the biggest collections of Rodins in the world, which, I understand, has now become a gift.

Most recently, there had been a loan for some years of a Turner painting. There would be very few Turner paintings in Australia. They are worth many millions of dollars. That Turner painting has been acquired by the Art Gallery and is now worth an enormous amount of money. It is the most valuable artwork in South Australia and one of the most valuable artworks in Australia, so it is an enormous addition to the collection. There has been quite a strong tradition of corporate philanthropy toward the Art Gallery. As one can probably see by going into the place, various bequests are noted, but also, some of the most significant donors of recent times have had individual rooms named after them

Only a few years ago there was a gift of Tiffany windows, which was an extraordinary gift, and so it goes on. Michael Abbott, who is the chair of the Art Gallery, is one of the major donors to the Art Gallery with collections of Islamic art, Indonesian art and Indian art. We probably now have the biggest collection in Australia. Another board member, Andrew Gwinnett, has made substantial contributions of Japanese art which, again, I think is the biggest collection in Australia. It is terrific that we have a great board which looks after the provenance of the artwork and backs the gallery director, Christopher Menz, and its members also make substantial donations themselves worth many millions of dollars.

The CHAIR: If there is nothing further in the arts area, we will move on to sustainability and climate change.

Mr PEDERICK: I refer to Volume III, page 839. Noting that the Premier's Round Table on Sustainability was dissolved on 30 June 2007, my question is: have the objectives and initiatives of this group been fully adopted and performed by the Premier's Council on Climate Change?

The Hon. M.D. RANN: Much of the work has been subsumed. What the Climate Change Council was doing was particularly specialist. We passed specific legislation through this parliament (the greenhouse gas reduction legislation) with the support of the Leader of the Opposition. The Climate Change Council came out specifically from that, in terms of setting up a council that was required, through our discussions in this place, not only to audit the work in terms of getting out and signing up voluntary agreement with sectors but also to report regularly and look at mitigation and also adaptations. There is a different focus. Our feeling was that the work of the sustainability group was largely covered in other areas, so we wanted to make sure that, rather than being generic, we had a sharper focus on climate change.

Mr PEDERICK: On that same page (page 839), what specific advice has the Premier's council given the government on the attainability of its greenhouse gas emissions targets, namely, limiting the state's greenhouse gas emissions to 101 per cent of 1990 levels during 2008-12 and by 60 per cent by 2020-50?

The Hon. M.D. RANN: I met with the chair, Mr David Klingberg, a former chancellor of the University of South Australia. As you can see, it is an extraordinarily prestigious group of people. They give us advice on a range of strategies by which we can reach those targets. I am happy to come back with some additional information.

There are some areas where we are doing particularly well. As I mentioned recently, at Snowtown we opened the TrustPower wind farm. TrustPower is a New Zealand company based in Tauranga. We opened $200 to $300 million worth of wind farm. I think it was about 23 kilometres long, and the next stage will take it to 35 kilometres long. I was able to point out on that day that, with 8 per cent of Australia's population, we have about 58 per cent of the wind power. That is an area in which the strategic plan target and, indeed, the target that we put into legislation that the member refers to, was to reach, as a state, 20 per cent of our power generated and 20 per cent of our power consumed coming from renewables by 2014, and we should reach that target by the end of 2010. So, that is four years ahead of our own target (which many people thought was too ambitious), but it is also 10 years ahead of the Rudd government's target that it has laid down for all of the Australian states—and, of course, we have heard other states whingeing that it is too tough.

I have to say that Mr Klingberg's advice is eminently practical. We have already entered into an agreement with the wine industry. The wine industry's commitment to signing up to the agreement on reducing greenhouse gas emissions is not only good for the environment and South Australia's credentials, but also is incredibly good for its marketing in Europe. Companies such as Tescos have said to a number of people around the world, 'We like your wine, but we are going to be looking at price, quality and carbon footprint,' and our wine industry is the first in the world to sign up to something like that and, not only is it good for the environment, but it gives us a marketing edge also.

Mr GRIFFITHS: I have a question as an extension of the answer just provided by the Premier. I am particularly interested in the wind farm issue because, in a previous role, I was part of a group that hosted the Premier at Troubridge Point when he opened the wind farm there of 55 turbines. I am interested in whether there is a strategic vision of the state government to determine the preferred location for these wind farms and whether you are actively working with potential investors to encourage development on those sites; or are you allowing for government investment to come in and create it where it sees an opportunity?

The Hon. M.D. RANN: There is very little government money in this, and people say, 'How come it has happened here?', just as they say, 'How come 85 per cent of the geothermal development is happening in South Australia, when just across the border there is the same geothermal prospectivity?' Dealing with geothermal prospectivity first, it is because we got our planning system right to fast-track geothermal prospectivity, and we changed the rules to make it much easier for those companies to choose South Australia than go elsewhere, even though it was just as hot rocks across the border. If you think of Innamincka, it is next to the Queensland border.

The other thing we had going for us is we were doing indigenous land use agreements, and that was developed by the previous Liberal government, under Trevor Griffin, and then developed by us. It has been very bipartisan, and I think that needs to be acknowledged. Basically, companies have been saying to us, 'You have made it much easier in terms of your exploration rules and regulations, your mining rules and regulations, and your indigenous land use agreements,' rather than having to run the gamut of the courts, as they do elsewhere in Australia.

We have also created planning rules which facilitated wind farm developments and made it much easier and faster. Obviously, the key thing they look at is the wind prospectivity of different areas and, obviously, the areas of high prospectivity include the South-East (in the vicinity of Penola but basically along the Limestone Coast) and also Eyre Peninsula (but then there are the added issues of transmission lines), and also the Mid North. For instance, Mid North, Snowtown and Hallett have been judged to be particularly high in wind prospectivity. In fact, I was talking to people from Suzlon, which is the Indian company, and it seems that the turbines tend to be from either Denmark or from India.

Often that relates to the different circumstances of where they will be positioned; perhaps one turbine is more suited to the Snowtown/Hallett area. I think it comes down to where the high areas of prospectivity are and where there are transmission lines, because there are some very high areas of prospectivity where there are no transmission lines or where they are very substandard.

We have basically been working with the companies, not only to help them find the best place but also to make sure that there are the best connections; dealing with local councils; and other things. I think the reason we are getting 58 per cent of the investment in Australia is because we have basically got it down to pretty much a fine art.

Mr PEDERICK: I refer to Volume III, page 819, Objectives of the Department of the Premier and Cabinet, paragraph 3, which states (in part): 'to develop policies and deliver programs in the areas of...sustainability and climate change'. My question is: what funding has been applied for the administration and related costs of producing these objectives and initiatives?

The Hon. M.D. RANN: In terms of our policy, if I were to give you the figure it could be misleading, so we will get a disaggregation of those figures for you.

Mr GRIFFITHS: I refer to economic development. Premier, I appreciate your willingness to talk in very broad terms about things here. It is not my expectation to ask you a question about dollar figures or numbers or anything when it comes to economic development, but I do want to focus on page 1,301, where it talks about the key objectives of the Department of Trade and Economic Development.

A report was presented to the government in, I believe, June 2008, identifying that within the next 10 years there will be a need to replace, I think, 206,000 workers, who will be retiring, with an opportunity for another 133,000 to find employment in the state through growth opportunities. Can you outline the plans that are being prepared to ensure that this number of people will actually be available?

The Hon. M.D. RANN: That really came out of the Economic Development Board itself. We have some extraordinary people—and we have had some extraordinary people—on the Economic Development Board over the years. It was really Robert de Crespigny and a couple of others who came up with the Plan for Accelerated Exploration (PACE) scheme. I think that probably only about $30-odd million has been committed to that area, but it has had magnificent bang for buck, including finding minerals all over the place. It was about partnering with exploration companies to get them going, including financial partnering.

Obviously, a subgroup of the EDB looked at defence, and that was spectacularly successful, with air warfare destroyers—$14 billion worth of defence projects. There are other groups, where we have people such as Leanna Read, who is a leading bioscientist. We also have Michael Keating, who used to be the head of the Department of Prime Minister and Cabinet; a very senior person, having been the head of government departments. Obviously, we have had people such as Carolyn Hewson and others over the years, all with specific expertise. We tend to bring these people together in different groups, whether it is about winning defence or mining contracts. We have also looked at other areas, such as skills. The skills agenda is critically important. We asked Michael Keating to head that up. He worked with both DFEEST and DTED.

I should mention some other people: Bruce Carter, chairman; Michael Hickinbotham; Fiona Roche, who has recently resigned; Kevin Osborne; Helen Nugent; Wayne Jackson formerly; Justin Milne, the head of BigPond; Cheryl Bart; and David Simmons, another former chairman from manufacturing. So, people come in and out with specific expertise.

David Cappo is involved in this, both as chairman of social inclusion and also as a member of the Economic Development Board, because we wanted to make sure that the two were linked together. We are working on how we get a social dividend and a jobs dividend for South Australians, as well as a wealth dividend, out of the mining boom.

Obviously, we have the trade schools for the future, we have the defence skills centre, we have mining skills centres; and, following that Keating report, there has been a bit of a reshuffle of permanent heads. Brian Cunningham, who was the head of DFEEST, has come over to be the head of DTED; and Ray Garrand, who worked very closely with Michael Keating, De Crespigny and others, has gone over to basically run the skills agenda for the government under minister Caica.

What we are doing now is, basically, the hard yards. That means a combination of things, including skilling people up. Next year we raise the school leaving age to 17. People under 17 have to be in training, earning or learning. We have been working with universities. There are record numbers of geology students. We are particularly targeting the international students, so as many as possible stay on, because not only are we going to need to skill up locals and make sure that we maximise the number of contracts for locals, but we are also going to have to supplement that in terms of increased migration.

The most recent migration figures show the highest level of migration since 1972. In a sense, it is a sort of a shandy of measures of which the Economic Development Board has the overview but which Ray Garrand, through his new position, will be driving.

Mr GRIFFITHS: Referring to the Premier's answer just then, my understanding is that only something like 15,000 people are entering the workforce each year within South Australia—younger people coming through. Obviously, therefore, the sums will not add up, so immigration is going to be an important aspect, and you have already answered that as part of it. But, as part of the focus on immigration, are we ensuring that the skills of the people who migrate to South Australia are matched with opportunities; and, importantly, are the people who have language difficulties receiving all the training they need, because surely language problems must be a big hindrance to employment opportunities?

The Hon. M.D. RANN: Obviously, matching is the key point. There are some areas where that is not the key point. We have been recruiting British bobbies, and that is going particularly well. Recently, I was asked to attend a couple of expos and seminars in New Zealand, for obvious reasons.

One of the great things about New Zealand is that Amanda Vanstone—and we are grateful for her and we are grateful for the new government continuing it—changed the migration rules, because we had a need for more people (whereas Sydney was chock-a-block) and for skilled migrants to get into South Australia more easily. Obviously, they have to be matched with employers, and often there is a lot of work being done even by state government departments in doing that, as well as a whole range of employment agencies. One of the reasons we have decided to target New Zealand, amongst a group of countries, is that there is no requirement for any visa; there is a totally free exchange.

They had a big show in an equivalent of the Royal Agricultural Showgrounds in New Zealand, and a whole range of companies, as well as government departments, came over. There were some government departments recruiting for civil engineers, for instance, for the department of infrastructure and transport.

The Department for Families and Communities, for instance, was looking for counsellors and psychologists and I think that, on one day, hundreds of people registered to be involved. Of course, the great thing about across the Tasman is that there are not the language problems and there is also no need for visas. I was able to demonstrate that some New Zealanders do quite well here.

Progress reported; committee to sit again.


At 18:16 the house adjourned until Wednesday 12 November 2008 at 11:00.


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