Budget 2011-12 IPAA Presentation Philip Gaetjens Treasury Secretary - - PowerPoint PPT Presentation

Budget 2011-12 IPAA Presentation Philip Gaetjens Treasury Secretary

Guide to the Budget Papers

Budget papers follow the usual pattern – but note BP2 Budget Statement § Opening chapters have been slightly reorganised to provide a better link between fiscal strategy going forward and weak fiscal starting point. BP6 Long-term Fiscal Pressures Report § NSW Intergenerational Report. Five-yearly report which projects long-term fiscal position forty years into the future.

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2011-12 $m 2012-13 $m 2013-14 $m 2014-15 $m 4-Year Total $m

Budget result estimate at March 2011 (a)

• 79
• 550
• 1,316
• 2,439
• 4,384

Change in revenue outlook, March to September (b)

• 413
• 151
• 72
• 299
• 935

Updated Budget result

• 492
• 701
• 1,388
• 2,738
• 5,319

Budget r esult est im at e in t his Budget

• 718

292 156 152

• 118

Turnar ound f r om Updat ed t o t his Budget

• 226

993 1,544 2,890 5,201 Net lending result at March 2011

• 2,922
• 2,851
• 3,893
• 3,945
• 13,611

Net lending r esult in t his Budget

• 3,986
• 2,560
• 2,603
• 1,066
• 10,215

Turnar ound in t his Budget

• 1,064

291 1,290 2,879 3,396

(a) Budget result adjusted for residual Solar Bonus Schem e costs. Source: Financial Audit, Part 1, Table 3 (b) Major revenue sources including GST, transfer duty, payroll tax and royalties

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Starting Position

$5.2 billion less than HYR

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Growing budget deficits and increasing debt-funded capex reflected a path of fiscal unsustainability

State Financial Results adjusted for the impact of Australian Government Economic Stimulus programs

St at e Financial Result s ex Eco no m ic St im ulus as at M arch 2011

(1 1 ,000) (9,000) (7,000) (5,000) (3,000) (1 ,000) 1 ,000 3,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201 201 1 201 2 201 3 201 4 201 5 Total State net capital expenditure Budget Result To tal State Result (Net Lending)

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Expense growth exceeded revenues by an average of 0.9% a year over the five years to 2010-11

Chart shows five-year rolling average revenue and expenditure growth rates (per cent per annum) net of Australian Government Economic Stimulus programs.

Gro w t h in revenues and expenses 2006-07 t o 2010-11 (five year averages)

5.4 6.3 5.0 5.5 6.0 6.5 7.0 2006-07 2007-08 2008-09 2009-1 201 0-1 1 Revenue Expenses

Budget Result

• 2,500
• 2,000
• 1,500
• 1,000
• 500

500 1,000 1,500

2008-09 2009-1 201 0-1 1 201 1

• 1

2 201 2-1 3 201 3-1 4 201 4-1 5

$ million 2010-11 Budget Half Yearly Review March 2011 Estimate This Budget

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The economic outlook is challenging in the short-term, returning to above trend in the longer term

2009-10 Outcomes 2010-11 Estimates 2011-12 Forecasts 2012-13 Forecasts 2013-14 & 2014-15 Parameters(3) New South Wales Real state final demand 3.4 2½ 2¾ 3½

• Real gross state product

1.7 2¼ 2½ 3 3 Employment 1.2 3.1 1 1¾ 1¼ Unemployment rate (1) 5.7 5.1 5¼ 5¼

• Sydney CPI (2)

2.9 3.8 2½ 3¾ 2½ Wage price index 3.2 3¾ 4 4 3½ (3) Real SFD and the Unemployment rate are not forecast in these years (1) Year average, per cent (2) Per cent change through the year to June quarter

NSW economy has slowed in 2011

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• 4%
• 2%

0% 2% 4% 6% 8% 10% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11

NSW State Final Demand per cent change on previous six months, at annualised rate

Revenues

§ Slow average growth for total revenue of 3.7% p.a.

• ver the FEs reflects expiry of National Partnership

(NP) agreements. Without them, average annual revenue growth is 5.0%. § The decline in NPs represents a significant risk as the services funded will be difficult to withdraw. § Taxation revenues are expected to grow even slower at 1.5% in 2011-12 reflecting soft economic growth and consumer caution in borrowing. Over the FEs, tax revenues are expected to grow by an average of 5.1% a year. § Expect little upside for revenue in the short term.

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New revenue measures will raise $2.2b over four years and support key Government priorities

Table 5.1: Tax Measures Announced in the 2011-12 Budget

Revenue Impact

(a)

Measure 2011-12 $m 2012-13 $m 2013-14 $m 2014-15 $m Target first home buyers’ stamp duty concession to newly built homes 131 277 305 336 Increase coal royalties for firms liable to the Australian Government’s Minerals Resource Rent Tax 235 244 465 Lower licence fees for safe drivers

• 24
• 29
• 37

Increase Climate Change Fund contributions to offset SBS costs 150 150 Payroll tax rebate for workers with a disability

• 2
• 2
• 2
• 2

Total 129 486 668 912

(a) Revenue impacts are expressed in nominal dollars. These figures show the part-year effect of the revenue measures where the change starts during the year.

Expenses

§ Expenses are projected to grow by 7.1% in 2011-12 but moderate to average 4.2% over the FEs. § Growth in employee related costs is expected to slow to 3.7% over the FEs, down from 6.6% over the four years to 2010-11. The slower growth largely reflects the new Government’s stronger wages policy. § Savings initiatives announced in the Budget will also contribute to slower expense growth from 2012-13. § With revenue growing only modestly – expense reduction is crucial

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12

Employee expense growth will now be restrained to reasonable levels

Wage Cost Comparisons – Real Wages 100 105 110 115 120 125

S e p

• 9

7 S e p

• 9

8 S e p

• 9

9 S e p

• S

e p

• 1

S e p

• 2

S e p

• 3

S e p

• 4

S e p

• 5

S e p

• 6

S e p

• 7

S e p

• 8

S e p

• 9

S e p

• 1

Quarterly index numbers NSW - Public Sector (State/local) WPI NSW - Private Sector RoA - Public Sector Federal EBAs - Aus. Private Sector

2011-12 Expense factors

§ rail grants due to be paid in 2010-11 were shifted forward into 2009-10 which lowered the 2010-11 expenses base. § under expenditure in 2010-11 rolled over into 2011-12 § a ramping up in costs associated with the Solar Bonus Scheme § a sharp increase in workers compensation costs associated with the Police Death and Disability Scheme § significant growth in expenditure in the disability sector associated with the new phase of Stronger Together: A New Direction for Disability Services § additional Australian Government NPs § the cost impacts of election commitments.

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Controlling expense growth over the forward estimates

Savings measures $8 billion in total over 4 years Efficiency dividends + Agency savings plans 1.5% in 2011-12 1.5% in 2012-13 1% in 2013-14 $150m in 2014-15 Total savings $6 billion over four years ($2.5 billion in 2014-15) VRs Up to 5000 VRs will be offered Procurement savings More than $1 billion over four years Program review $800m to 2014-15 Wages Policy Avoids further costs of $2 billion over 4 years

NSW 2021 Plan and Financial Management

The NSW 2021 Plan supports the disciplined and effective management of State Government finances. Specific initiatives include: § comprehensive fiscal and savings strategies to align trend revenues and expenses growth to help New South Wales maintain its Triple-A credit rating § developing an accountability framework for public sector financial management, improving agency capacity to effectively manage budgets, and increasing accountability at a cluster and agency level § reviewing budget processes and systems to better support sound, sustainable effective decision making and resource allocation, and to ensure alignment with the NSW 2021 Plan goals.

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Financial Management Reform

The framework for budget compliance will be enhanced by: § removing tolerance limits on agency net cost of services § reducing and restricting the use of the Treasurer’s Advance § requiring Ministers and CEOs to manage within the allocated Budget and reprioritising to accommodate pressures § appropriating only to senior cluster Ministers and only they can request Budget supplementation from Cabinet § permitting agencies to rollover unspent appropriations for future years provided it does not increase the ongoing level of expenditure.

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Further Reform – Expenditure and Management Audit

The Expenditure and Management Audit will: § examine public sector management and service delivery issues, including procurement, corporate services and asset management and identify potential improvements to productivity, service quality, and value across the public sector § evaluate the effectiveness of existing performance metrics and options for greater transparency and accountability through improved public reporting § use benchmarking data to identify objectives for performance improvement and analyse the reasons for any significant divergence from these objectives in NSW § make recommendations to generate long term systemic reform, including the establishment of appropriate performance objectives for public sector management and delivery.

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Better financial management underpins alignment of expenditure and revenue growth

Gro w t h in revenues and expenses 2006-07 t o 2014-15 (f ive year averages)

4.0 4.5 5.0 5.5 6.0 6.5 7.0 2006- 07 2007- 08 2008- 09 2009-1 201 0-1 1 201 1

• 1

2 201 2-1 3 201 3-1 4 201 4-1 5 Revenue Expenses

Capital Expenditure

Total state capital expenditure will be a record $62.6 billion over the four years to 2014-15: § PTE capital expenditure of $37.3 billion is driven by spending on transport, electricity and water. § GG Capital expenditure of $25.2 billion driven by health, education, and removing tolerance limits on agency net cost of services § State funded infrastructure spending (GG + Transport PTE’s) will continue to rise over the FE. § The commitment to strong capital spending further emphasises the need for expense restraint to maintain the AAA credit rating.

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Together this has improved the Budget result by $4.3 billion from March 2011, and improved net lending

March 2011 estimates 2011-12 Budget estimates

Comparison of General Government Budget Forecasts, March estimates vs 2011-12 Budget, Excluding Australian Government Economic Stimulus

(5,000) (4,000) (3,000) (2,000) (1 ,000) ... 1 ,000

2010-11 2011-12 2012-13 2013-14 2014-15 Budget Result inclusive of rail capital grants GG net acquisition of non-financial assets GG Net Lending Result

(5,000) (4,000) (3,000) (2,000) (1 ,000) ... 1 ,000 2010-11 2011-12 2012-13 2013-14 2014-15

Budget Result inclusive of rail capital grants GG net acquisition of non-financial assets GG Net Lending Result

90 1 00 1 1 1 20 1 30 1 40 1 50 1 60 1 70 1 80

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (Net Debt + Net Unfunded Super) / NFPS Revenues Histo rical Trend March 2011 Projectio n This Budget

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…and the fiscal gap has improved 1.0%