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. 2
Starting Position $5.2 2011-12 2012-13 2013-14 2014-15 4-Year billion less than HYR $m $m $m $m 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 5,201 -226 993 1,544 2,890 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 3,396 -1,064 291 1,290 2,879 (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 3
Growing budget deficits and increasing debt-funded capex reflected a path of fiscal unsustainability St at e Financial Result s ex Eco no m ic St im ulus as at M arch 2011 3,000 1 ,000 (1 ,000) (3,000) (5,000) (7,000) (9,000) (1 1 ,000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201 0 201 1 201 2 201 3 201 4 201 5 Total State net capital expenditure Budget Result To tal State Result (Net Lending) 4 State Financial Results adjusted for the impact of Australian Government Economic Stimulus programs
Expense growth exceeded revenues by an average of 0.9% a year over the five years to 2010-11 Gro w t h in revenues and expenses 2006-07 t o 2010-11 (five year averages) 7.0 6.5 6.3 6.0 5.5 5.4 5.0 2006-07 2007-08 2008-09 2009-1 0 201 0-1 1 Revenue Expenses Chart shows five-year rolling average revenue and expenditure growth rates (per cent per annum) net of Australian Government 5 Economic Stimulus programs.
Budget Result 1,500 1,000 500 0 $ million -500 -1,000 -1,500 -2,000 -2,500 2008-09 2009-1 0 201 0-1 1 201 1 -1 2 201 2-1 3 201 3-1 4 201 4-1 5 2010-11 Budget Half Yearly Review March 2011 Estimate This Budget 6
The economic outlook is challenging in the short-term, returning to above trend in the longer term 2013-14 & 2009-10 2010-11 2011-12 2012-13 2014-15 Outcomes Estimates Forecasts Forecasts 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 (1) Year average, per cent (2) Per cent change through the year to June quarter (3) Real SFD and the Unemployment rate are not forecast in these years 7
NSW economy has slowed in 2011 10% NSW State Final Demand 8% per cent change on previous six months, at annualised rate 6% 4% 2% 0% -2% -4% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 8
Revenues § Slow average growth for total revenue of 3.7% p.a. over 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. 9
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 (a) Revenue Impact Measure 2011-12 2012-13 2013-14 2014-15 $m $m $m $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. 10
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 11
Employee expense growth will now be restrained to reasonable levels Wage Cost Comparisons – Real Wages 125 120 Quarterly index numbers 115 110 105 100 7 8 9 0 1 2 3 4 5 6 7 8 9 0 9 9 9 0 0 0 0 0 0 0 0 0 0 1 - - - - - - - - - - - - - - p p p p p p p p p p p p p p e e e e e e e e e e e e e e S S S S S S S S S S S S S S NSW - Public Sector (State/local) WPI NSW - Private Sector 12 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. 13
Controlling expense growth over the forward estimates Savings measures $8 billion in total over 4 years Efficiency dividends 1.5% in 2011-12 + Agency savings plans 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 14
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. 15
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. 16
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. 17
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) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 2006- 2007- 2008- 2009-1 0 201 0-1 1 201 1 -1 2 201 2-1 3 201 3-1 4 201 4-1 5 07 08 09 Revenue Expenses 18
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