The Hon. R.I. LUCAS (16:10): I rise to support the second reading of the Supply Bill. As I see it, the background to this debate features some of the comments made by the Hon. Mr Lawson in relation to South Australia’s credit rating, what I will refer to as the AAA credit rating debate. As the honourable member indicated, it has been the one supposed claim to fame of this government—and, in particular, of Premier Rann and Treasurer Foley.
In recent weeks it has been clear that Treasurer Foley has been rather glumly predicting, to journalists and anyone else who would listen, that South Australia—and he, as Treasurer—is about to lose the state’s AAA credit rating. If that is indeed the case, then Treasurer Foley will become only the second treasurer in South Australia’s history to have lost the state’s AAA credit rating. Treasurer Foley’s name will go down in the halls of infamy along with former treasurer John Bannon, the only two treasurers (Labor treasurers, I might add) who have lost the state’s AAA credit rating during their term as treasurer.
If that happens, Premier Rann’s name will also go down in the halls of infamy as being only the second premier in the state’s history to have lost South Australia’s AAA credit rating, and he also will join former premier John Bannon as the only two premiers—again, Labor premiers—to have done so. Mr President, as you and anyone who knows Treasurer Foley would know, that would be a huge political blow to him, as well as a massive blow to his ego in terms of what he sees as his personal accomplishments.
I would like to trace the history of the credit ratings, having spoken in recent days to Standard & Poor’s and gathered some information from Moody’s agency as well, the two pre-eminent agencies that rate the states and countries around the world. I will not go through all the detail, but the simple history is that in the period 1991-1992, at about the time of the State Bank crisis, Moody’s dropped the state’s AAA credit rating first to AA1 and soon after that to AA2. As I said, that was when John Bannon was treasurer.
It is interesting to go back through Standard & Poor’s ratings. It rates the state of South Australia on two categories: a foreign currency rating and a local currency rating. It has advised me that the local currency rating is the better measure; however, that rating started only from 1991. When one looks at the foreign currency rating for this state, we see that we lost Standard & Poor’s AAA credit rating to AA+ in 1986, at the time when John Bannon was premier and treasurer. In 1991 and 1992, at the time of the State Bank crisis, when the local currency ratings had been issued by Standard & Poor’s, the AA+ was reduced first to AA and then to AA with a negative outlook. So, in and around that period we saw downgrades of the state’s credit rating with Standard & Poor’s. We lost the AAA rating on the foreign currency measure back in 1986—again, under the premiership and treasurership of John Bannon at that time.
I note the personal claims of the current Treasurer of the accomplishment of the AAA credit rating in 2004. I remind the Treasurer and members that Standard & Poor’s issued a major report on South Australia in September 2003 which talked about the credit rating upgrade. Standard & Poor’s, in that report, stated that there were two key factors contained in the state’s debt burden. The report states:
“In order of importance, privatisation of the state’s electricity assets in 2000 and 2001, which reaped almost $ A 5 billion, most of which was used to pay down debt.”
Standard & Poor’s listed two major factors, the pre-eminent one, in order of importance, was privatisation, and the other was the restructuring the state’s finances. The key issue there in relation to the massive improvement in the state’s finances was the massive increase in GST revenue collections over the original estimates through the period from 2001-02 onwards. Again, there has been much talk about the rivers of gold of GST up until the last 12-month period, which has left all state and territory governments in a much healthier position.
I remind the Treasurer and government members in this chamber that they were the two key factors that led to the AAA upgrade, and both of those were trenchantly opposed by Treasurer Foley and Premier Rann when they were in opposition. Premier Rann said that the GST deal the state had done was, in essence, a lemon of a deal from the state’s viewpoint. They were very critical of the GST and, of course, at the time they maintained—and they still maintain the pretence even to this day—that they opposed the privatisation and the debt reduction achieved through the privatisation of the state’s electricity assets.
Standard & Poor’s, in its document from September 2003 and subsequent documents, made it quite clear that the decisions taken by the former government—certainly nothing in relation to those taken by the current government—were the major factors leading to the AAA credit rating upgrade.
In more recent times, Standard & Poor’s, in an interview on ABC Radio on 2 July last year, started raising some warning signs when it looked at some of what it said were the major problems facing the state of South Australia, and Standard & Poor’s looked at one of the measures, which was the net financial liabilities to revenue ratios of the state government. On 2 July 2008, the Standard & Poor’s commentator said:
“If the net financial liabilities to revenue ratios did get up around that 80 per cent mark then we would be having a look at the rating and seriously looking at what else was going on with South Au stralia’s finance. It’s that 80 per cent mark that is, I guess, a hot button for us.”
It is important to know that, just prior to this budget, the most recent budget figures indicate that the state’s net financial liabilities to revenue ratios is already above the 80 per cent hot button point: it is 87.3 per cent, and forecast to reach 92.1 per cent next year. So, in broad terms, it is already in the high 80s or the low 90s, which is significantly above the 80 per cent hot button mark identified by the Standard & Poor’s commentator in the middle of last year.
Given the significant financial problems, some created by the global crisis but others created by the policies and the financial mismanagement of the current Treasurer himself, we are likely to see that particular measure (that is, the net financial liabilities to revenue ratios) potentially going over 100 per cent, which is significantly higher than the hot button mark that Standard & Poor’s has identified. I think that is why we have seen Treasurer Foley glumly predicting to commentators the fate of our AAA rating. As I have said, he may well suffer the ignominy of being only the second treasurer in the state’s history to lose the AAA credit rating whilst they were treasurer.
Over the past 18 months or so, the Legislative Council’s Budget and Finance Committee has been going over with a fine tooth comb Treasurer Foley’s fiscal management of government departments and agencies. This afternoon I hope to outline some of the findings that the Budget and Finance Committee has established and to indicate that the current forward estimates Treasurer Foley has produced—and, we believe, the forward estimates he is about to produce—are based on rubbery figures. In other words, the forward estimates Treasurer Foley has produced and will produce should not be accepted by credit rating agencies or commentators, or any other independent analysts, as being capable of being achieved.
In doing that, I hope to demonstrate the facts and the evidence that the previous estimates Treasurer Foley has produced are not capable of being delivered by this Treasurer, if he were to be re-elected, and to use evidence given by chief executives of government departments and agencies about the current problems they are having with implementing the existing forward estimates in their particular department or agency.
As I have said, I think it is imperative that rating agencies and also the Auditor-General have a close look at some of the claims being made by the government and, more particularly, comparing it to performance and my allegation that they are based on rubbery figures. I am pleased to say that the new Auditor-General, for the first time in recent times, actually did start looking at these claims, and he had a look at the shared services claims, and I will refer to those in a moment. I think the Auditor-General’s office should do that and much more in terms of implementing its mandate.
We see audit offices in other states, in particular, Victoria and, to a degree, New South Wales, vigorously testing the performance against the claims in relation to savings tasks and other policies announced by governments and treasurers in their jurisdiction. That is a function that audit officers ought to adopt as a part of their ongoing process, and it should not just be a Legislative Council Budget and Finance Committee producing the evidence to dispute the rubbery figures of any government or Treasurer. The point I hope to demonstrate is that we will see the work of the Budget and Finance Committee show a significant lack of financial discipline from this Treasurer, this government and these ministers in the period since 2002.
In doing that, I refer to one of the early decisions and announcements Treasurer Foley made back in May 2002, which in my contention he made for political reasons at that time. The former government had experience with the Education Department of a $30 million overspend by that department, and it required of that department a repayment over a four-year period of that $30 million overspend—a modest repayment of some $8 million per year over four years out of a very significant budget, which at that stage would have totalled over $5 billion.
Without retracing all the detail of that time, in endeavouring to claim a black hole and unsustainable spending, Treasurer Foley indicated that he would forgive that particular $30 million overspend by the Education Department and that it would not be required to repay it. At the time, I warned the Treasurer that the message he was sending to departments was not to worry about overspending, that if the budget is there and they happen to overspend it, do not worry about it: the government will be there to bail them out and there will be no requirement in relation to financial discipline. Sadly, the Budget and Finance Committee has established that that is what has occurred.
I turn, first, to the health department. The evidence before the Budget and Finance Committee showed that in June, the last month of the 2006-07 financial year, Treasury had to bail out the health department by making an allocation of some $62 million extra, and even with that the health department had to report a $32 million overspend. It waited around for some six to eight months to see whether it would have to repay the $32 million. Because of the rivers of gold from the GST, they were forgiven the $32 million. For that financial year that department overspent its budget by $94 million.
The following year, the 2007-08 financial year, again in June (2008) that agency had overspent its budget by $70 million, and Treasury and the Treasurer bailed out the health department by allocating an additional $70 million to that department to help it balance its books by the end of the year. My advice from people working within health is that, in February or March this year, the health department was looking at a budget blowout or overspend of between $50 million and $100 million for this financial year. Given the performance of the past two years, as outlined, that does not seem to be out of the ball park for the health minister and the health department.
Given what has occurred in the past, the health minister and health department are not worrying about having to manage their budget within allocations from Treasury and the Treasurer because they work on the basis that at the end of each financial year they will be bailed out. In the past, with the benefit of the rivers of gold, the Treasurer has been in a position, through unanticipated additional revenue, of being able to bail out departments and ministers who cannot manage their budgets within the allocation. This year that has changed, so if the health department is facing a $50 million to $100 million overspend already, it will be difficult for the South Australian Treasurer to find that additional money to bail out the health department.
In September last year the Budget and Finance Committee took evidence from the health department (pages 578 and 580 of the committee’s transcripts). Under the current savings regimes the health department is required to make savings or cuts of up to an annual saving of $163 million a year by next year, 2009-10. That does not include the additional savings task allocated as a result of the mid-year budget review, which was in December this financial year. Given that the health department is such a significant part of the total spending, if it is to make savings of between 300 and 500 additional positions from within that portfolio, then its annual savings task will be significantly above the $163 million a year—potentially over $200 million a year.
Without going through all the detail of the evidence given, it is quite clear that the health department is not in a position at this stage to deliver the savings it was required to achieve as a result of the budget decisions of 2006-07 and 2008-09, let alone the additional ones of the mid-year budget review. It is stumbling along, as are many other departments year to year, in meeting each year’s budget savings to the best of their ability. In the case of the health department, it has not been meeting it because it has blown out every year and Treasury has bailed it out.
One of the most significant savings tasks it has been given is what is called the ‘health reform service delivery changes’, which started off saving $13.6 million a year, supposedly, but by the time of the 2009-10 budget it was meant to be saving $47.6 million a year.
When we quizzed Dr Sherbon and the health department about how they would achieve this $47.6 million through what is called, euphemistically, health reform service delivery changes, he said they were going to achieve that by reducing the level of increase of inpatient admissions into hospitals down to a 2 per cent increase from a level which in various times in the past had been increases of 7 to 8 per cent, and in more recent years somewhere between 3 and 4 per cent. So Dr Sherbon was saying they were going to achieve these savings of $47 million a year by reducing the increase in in-patient admissions and, supposedly, they were going to do that through preventative measures in the community and a whole variety of other mechanisms which, if you were to believe and accept them, were certainly going to be long-term changes of many years in the making and certainly not achievable by the next financial year. The question that I put to Dr Sherbon in September was:
“Last year on 5 November you reported to the committee the growth was 3 per cent per annum for admissions. It is not a remarkable achievement to stay at 3 per cent. This is your evidence last year: the goal you had to achieve was around 2 per cent.”
He answered: yes. I asked:
“You had to reduce the growth in admissions to 2 per cent ultimately to achieve the $46 million in savings?”
As I said, Dr Sherbon then went on to say that it had been 7 to 8 per cent and it was now just over 3 per cent, and they were hoping to get it down to that particular level of 2 per cent.
As I said, there is much more detail there and I am not going to go into it, but suffice to say that there is no way that health is going to meet that particular savings task. When that department meets with the Budget and Finance Committee some time mid this year or in the third quarter, I am sure the committee will be advised that that particular savings task has not been achieved and none of the other savings tasks have been achieved, either.
Likewise, the Families SA agency gave similar evidence to the Budget and Finance Committee. In 2006-07, there was a $32 million overspend and it had to be bailed out by Treasury because it had overspent. In 2007-08, again there was another significant overspend, there was a negotiation with Treasury (as it was described), and it was given permanent ongoing additional spending (a bail-out) in that year of $18.6 million—an additional budget of $18.6 million for each subsequent year.
I turn now to another couple of agencies—the Department for Environment and Heritage and the Department of the Premier and Cabinet—to highlight a further point, and I refer to the transcripts of evidence on pages 728 and 729 in relation to the Department for Environment and Heritage. That department, a much smaller department, indicated that its total savings task by the end of the forward estimates year, 2012-13, was going to be $12.5 million per annum, plus whatever its share of the Mid-Year Budget Review was, and at the time of giving evidence it was not able to advise the committee what that particular savings task was going to be.
For that agency, it was a very significant savings task, and it was actually just achieving its savings on a year-by-year basis. It had not been able to lock in decisions to achieve its savings over the four years. We put the following question:
“So it would be fair to say that, if you as an agency are just doing it one year by one year, in January 2010 you would be making decisions and recommendations in relation to the 2011-12 budget year. Is that correct?”
Mr Holmes, on behalf of the department, said, ‘That’s right’. So, in regard to these particular savings measures which have been locked into the forward estimates, CEOs, finance directors and agencies have no idea as to how they are going to achieve them at the moment. They are just going from year to year. They are trying to get the 2008-09 savings, and currently they are talking with ministers about how they will achieve the 2009-10 savings. Then, after the budget, they will try to work out how they will achieve the 2010-11 and 2011-12 savings tasks.
If this government is re-elected, it will face chief executives saying, ‘Okay, we still have a major decision. We are going to have to start cutting services or increasing taxes.’ If there is a new government, it will be receiving similar advice. The decisions will not have been taken to lock in the savings tasks required to meet the current savings requirements of the government.
Similarly, I turn to the evidence of the Department of the Premier and Cabinet on page 779 of the Budget and Finance Committee transcript. That department is required to make savings increasing up to $30.4 million a year—so, annual savings of $30.4 million by the year 2012-13 at the end of the current forward estimates period (about $100 million in savings over the forward estimates but factoring up to increases of $30.4 million). Next year’s savings are at a much smaller level of $14.7 million, but increasing through to the $30 million figure. Again, we put the question to the acting chief executive:
“Have you locked in a process and made decisions on those yet or are you still working on those savings?”
The acting chief executive, Mr Mackie, said:
“We have locked in for 2009-10.”
So Mr Mackie is saying, ‘Okay, we have made the decisions for savings for next year but, when you start talking about the big savings in 2010-11, 2011-12 and 2012-13, we do not know how we are going to achieve those. We have not made decisions in relation to how those savings will be achieved.’ They will be tasks for either a re-elected government or a newly elected government post the 2010 state election.’
Again, from the evidence of the Budget and Finance Committee, some of the savings tasks given to agencies have been demonstrated never to have been achieved by the current government and its administration. We remember the first example of that, going back a little bit in time to the first budget (the 2002-03 budget), that is, the announcement then that they were making $967 million in savings over the forward estimates period from 2002-03. I put on the public record again that, even fighting for this under FOI, asking questions on notice and without notice in the parliament, the Treasurer of South Australia has never revealed—this is seven years later—the detail of the supposed $967 million in savings announced in that budget.
The answer as to why is because they were never achieved. The Budget and Finance Committee has established that in a number of cases the savings were either forgiven by the Treasurer or not achieved. What we also established is that some agencies, rather than savings, had increases in revenue incorporated in that $967 million. Having sold to the rating agencies that they were cutting spending, what the Treasurer included in the $967 million calculation was some agencies that increased fees, charges and revenue items as a budget savings task.
It is quite clear that they are two separate items. Having sold themselves to rating agencies as being tough financial managers—’We are cutting $967 million in programs across government departments and agencies’—we now know that a component of that $967 million was revenue increases and not cuts in programs and services.
One asks the question after seven years—surely the confidentiality excuse has long gone—why the Treasurer still refuses to answer the question: what were the decisions that comprised the $967 million in total savings?
Secondly, one of the bigger recent claims for savings is what is known as the shared services initiative, which has been an embarrassment to the government, even though it was warned by the Public Service Association, its own workers and certainly the opposition that the claims it made were illusory. They claimed $130 million in savings over a four year period, factoring up to annual savings of $60 million a year by 2009-10.
The work of the Budget and Finance Committee over 18 months has demonstrated that those claims are not only illusory but also rubbish. There have been significant cost blow-outs. The implementation cost of the program was meant to have been $60 million. The Budget and Finance Committee established that there had been a $37 million blow-out in the $60 million program, so the total costs of implementation were $97 million.
We put questions to the Under Treasurer, Jim Wright, about the issue of dead rent for office space. We asked him about Westpac House at 91 King William Street, which has been leased by the government. He was asked whether it was true that most of those floors are vacant, and Mr Wright, in an outbreak of honesty on 30 June 2008, said, ‘I think that would be true.’ Mr Wright also confirmed that the government at that stage was going to be spending $9 million fitting out new office space at 77 Grenfell Street. He said:
“This is one of the logistical difficulties that probably was not recognised as clearly as it could have been. The best choice we could make was to take 77 Grenfell Street even though that would invo lve some dead rent for a while.”
There are many other examples of foolish, ill-considered decisions taken by Treasury, the Treasurer and the government in relation to shared services arrangements, and the wastage of money on the empty office buildings is just one part of that.
I will not go through the detail of this, but there was considerable evidence from agencies in relation to the double counting of shared services savings. A number of agencies came to the Budget and Finance Committee saying that they had already included, in their own required savings task, savings which the government was now wanting to claim as part of whole of government shared services savings; that is, they had already implemented some changes in relation to accounts payable, accounts receivable and corporate service savings, which the government was now trying to claim for an overall shared savings initiative.
Some departments, including Families SA, won the battle with Treasury and were given approval to keep those savings as their own, which therefore reduced the overall shared savings achievements. Others, such as DFEEST, thought they would win the battle with Treasury and had been given indications by the Under Treasurer, but in their most recent evidence to the Budget and Finance Committee indicated that they had lost the battle. Treasury claimed those savings, even though it was prior to the shared services arrangement and they were now having to look for other savings to achieve the savings for that particular department and agency.
At least in relation to shared services, eventually in October last year, some six to nine months after the Budget and Finance Committee had exposed many of these things, the Auditor-General and his department produced a report which flushed out some details of the wastage of money and the illusory nature of the claimed savings for shared services. As I said at the outset, the Auditor-General and his officers need to do much more in relation to comparing performance to claims in relation to some of these savings tasks.
It is so easy for governments of all persuasions to make claims as to what they will do, and the Auditor-General is the only one in a position to demand cabinet documents and information from ministers in relation to actual performance. The Budget and Finance Committee can certainly get to chief executives and finance officers and others, but it is only the Auditor-General who can eyeball a minister or the Treasurer and say, ‘You have claimed this: provide the evidence to me that you have achieved it.’ If they are able to do that, the Auditor-General can happily report that it has been done. If it has not been done, it should be the Auditor-General’s responsibility to report on it.
The second one in this particular area of illusory savings is what is called the Future ICT project. The best way of demonstrating this is to refer to some evidence given by the health department to the Budget and Finance Committee. In particular, I refer to a file note dated 23 August 2007 from the Chief Information Officer for the health department, Mr David Johnston, to his chief executive (and himself) in relation to the impact of the Future ICT program on the health department.
We all remember that the Future ICT was this wonderful thing the government did in breaking up the former single EDS contract and dividing it up amongst a number of providers, and it was going to make savings of $30 million a year. How do we know that? Treasurer Foley said in his election promises that he was going to do this and it was going to save $30 million a year. After the election, when it was not delivering that, Treasury was told, ‘Well, you will just have to demonstrate that we have saved $30 million a year.’
How did Treasury do that? Treasury went back and got some figures from the 2003‑04 financial year. How do we know that? Angela Allison, Director of Corporate Services from the Department of Trade and Economic Development, told the Budget and Finance Committee that Mr Foley and Treasury had used ICT spending figures for 2003-04 to help justify his claim of $30 million in annual savings. Ms Allison said:
“That is the way the F uture ICT savings were calculated. They used 2003-04 baseline figures.”
My question to Ms Allison was:
“That makes n o sense. I do not ask you to comme nt but let me say, as a former t reasurer, that it makes no sense. Did you not have figures more recently available that you could provide?”
“We do, but Treasury are working from 2003-04 for whole of government.”
Ms Allison went on to explain that, by using the old figures, Treasury had significantly overestimated the real level of savings for DTED being achieved by the Future ICT process. Ms Allison told the committee that claimed savings of $800,000 per annum for them was approximately double their expected level of claimed savings and that, as a result, DTED would have to slow down the replacement program for computers within the department and a range of other policy changes to try to meet these particular savings.
Treasury got a $30 million bottom line and divided it up between the departments and said, ‘Your savings are $5 million here, $800,000 there. It does not matter what the reality was, they are your savings in the Future ICT project.’ I return to this file note from the chief information officer from the health department, because he said that they were told that the savings to them, as part of this $37 million, was $4.7 million in 2007-08, increasing to $5.1 million in 2010-11.
What Treasury told health was, ‘You are going to be saving $5 million in this Future ICT contract. We are going to reduce your budget appropriation by that level.’ In this memo of 23 August, Mr Johnston, who is the head of IT for the health department, said:
“The net Health position as a result of Future ICT is now estimated at” —
I seek leave to have inserted in Hansard a table composed by Mr Johnston.
(Please refer to attached Table 1)
|Savings allocated||$ —||$4.7m||$4.8m||$5.0m||$5.1m|
The Hon. R.I. LUCAS: Without going through all the detail of that table, Mr Johnston shows that the total cost to that department—not savings—starts at $8.6 million in 2006-07, increasing to $10.3 million in 2010-11. He summarises by saying, ‘The total cost to health of Future ICT was $51.4 million over five years’. Instead of actually saving $5 million a year, David Johnston was telling Treasury and his own department that the additional cost to the health department was about $10 million a year—$51.4 million over the five years.
That again is something that I think the Auditor-General should look at. I mean, here is a claim from the government and ministers that this contract saved departments and agencies $30 million a year. There is evidence before Budget and Finance to show that that is nonsense, that that is rubbish. The Auditor-General should report in this coming audit report (or a future report) on the truth or otherwise of the ministers’ and government’s claims of supposedly $30 million a year having been saved as a result of that particular program.
There are many others, but they are the key ones which highlight that some of these claimed savings from the government are illusory and are the savings which are backing up the supposed budget performance and bottom line in the forward estimates that the credit rating agencies and others are being asked to look at. It is clear that, whatever bottom line the coming budget might indicate in relation to the forward estimates, that bottom line will not be achieved due to the fact that the Treasurer and Treasury are using rubbery figures. The evidence from the Budget and Finance Committee has certainly demonstrated that over the years.
I now turn to the reference to the state’s deficit position and, in doing so, I seek leave to insert a statistical table in relation to budget performance 1993-94 through to 2001-02.
(Please refer to attached Table 2)
Underlying non-commercial sector cash result surplus (deficit)
The Hon. R.I. LUCAS: This particular table demonstrates that, contrary to the oft repeated claims from the Treasurer and others, the government inherited a budget in surplus position. For the last two financial years—2000-01 and 2001-02—there were small surpluses in the underlying non-commercial sector cash result position of the budget papers prior to the 2002 election. For the two previous years, there were two small deficits, and, the year before that, there was a small surplus.
The government inherited a budget in surplus. As I said, this table demonstrates the claims made by members of this chamber and others that the former government never produced a surplus budget to be factually untrue, incorrect, wrong—whatever words you want to use—and the budget documents of those days and that particular table which comes from the budget documents demonstrate the position.
From 2002-03 onwards, of course, three different measures of the deficit position are produced. One is on the cash basis, one is on the net lending basis and one is on the net operating balance. The last two are accrual measures of the surplus or deficit position of budget. The cash position, as I have indicated before, is still the one used by the federal government—reported only this week. That was the position used by most state governments and the former Liberal government in South Australia through to 2001-02. When the government was elected in 2002, it said that it would use one of the accrual measures—net lending—and that was the really true measure of the health of the budget.
After a number of years that net lending measure of the deficit and surplus lurched into deficit and the government then changed its position and said it would no longer use that measure, so it was not going to use cash, it would not use net lending and it moved to the last remaining one (which was actually still in surplus) which was the net operating balance. It continues to use the net operating balance measure.
As of the most recent figures, every measure—cash, net lending, net operating balance of the state budget—is in deficit, and in significant deficit. Given the events of recent months, as well as both the impact of the global financial crisis and this Treasurer’s and government’s own financial incompetence, we are likely to see all three measures in this coming budget being in significant deficit also. So, the reality is that the position is certainly going to worsen.
Where to from here? If this government were to be re-elected in March 2010 what would be the impact on the budget position? Treasurer Foley has already promised, and will promise prior to the election, that he will not increase taxes after the 2010 election if he is re‑elected. I am happy to have this prediction marked as from this day: there is no doubt that, if this government is re-elected—even though it makes that promise about no increase in taxes, it cannot be believed—it will increase taxes and charges significantly after the 2010 election. That will be the only way it will be able to bring the budget in somewhere along the deficit line that it is predicting.
As I have outlined already, the agencies are not achieving, under this current government, their current savings tasks and requirement. They are not achieving those tasks at the moment. They are not going to achieve them over the coming years if the government is re-elected and so the only way Treasurer Foley will be able to bring the budget into some semblance of normality, albeit still a deficit position, will be through a massive or at least significant increase in taxes.
I want to look at the record of this Treasurer and this government in relation to keeping promises. I remind members of the infamous line we heard from Treasurer Foley when, if you remember in the 2002 election, he had made significant commitments about not increasing taxes and charges prior to the 2002 election. Treasurer Foley went to the 2002 election promising no increases in taxes and charges. He wrote letters to industry associations, committing to the Australian Hotels Association a letter signed almost in blood by him, saying, ‘We will not increase gaming taxes on your industry if we are elected in 2002.’ Of course, in his first budget he broke that promise. What did he say? He said, in defending that promise, in Hansard on 15 July 2002:
that is, the then leader of the opposition (Rob Kerin)—
“do not have the moral fibre to go back on your promise. I have because I have done the right thing in taxing the industry.”
He attacked the then leader of the opposition on the basis of not having the moral fibre to break his own word and to break his own promises. Again, he stated:
“You do not have the moral fibre to go back on your promise. I have because I have done the right thing in taxing the industry.”
Even though he personally had signed a letter to the industry (from which, of course, they had received significant financial donations to their party prior to the 2002 election) and had written a letter containing that promise to the industry, he broke the promise in the budget immediately afterwards and then had the arrogance and the temerity to say that he had the moral position right because he had the moral fibre to break promises and the then leader of the opposition (Rob Kerin at the time) did not have. Their promises were unequivocal. In January 2002 Premier Rann and Mr Foley said:
“None of our promises will require new or higher taxes and charges and our fully costed policies do not contain provisions for new or higher taxes and charges.”
That was a promise they took to the election. As I said, in some cases they wrote letters and, in that first budget in July 2002, there was more than $200 million in increased taxes over four years—not only the gaming machine tax increases, but there were increases in stamp duty, conveyances and rental agreements, and increases in the emergency services levy and compulsory third-party insurance. There were big increases in fees and charges right across the board, contrary to the promises they had made prior to the 2002 election.
So, in 2002, they promised no new tax increases. In 2006 the climate was different. I might say that, contrary to urban folklore, the Liberal Party joint party room made a decision, as a party room, to support a radical package of significantly increased spending funded through a reduction of 4,000 by way of voluntary separation packages in the size of the public sector: no sackings, contrary to the claims made by Mr Rann and Mr Foley, but a significant package of spending financed by that option.
The joint party room, as I said, contrary to urban folklore, had two options: there was a much more modest spending package financed by a much more modest efficiency savings regime, or the more significant one. The joint party room chose the latter option. Of course, the Labor government, supported by the PSA and others, then attacked the 4,000 reduction in the size of the public sector. The government made a whole series of promises prior to the election, and I want to read one in particular made on 16 March 2006 in an interview involving Treasurer Foley and Matt Abraham, as follows:
Abraham: “Okay, but … will you offer any separation packages at all?
Foley: “We at this point are looking at about 800 additional vital public servants in our promises to date. That is 400 police, 100 teachers, 44 new medical specialists.
Abraham: “And you won’t fund those by getting rid of other jobs?
I repeat that:
Abraham: “And you won’t fund those by getting rid of other jobs?
Foley: “No. We will demonstrate today all of these spendings can be provided through appropriate efficiencies and savings within a budget. Matthew, I’ve brought down fo u r budgets where I’ve had savings in every budget.
Abraham: “You said that.
Foley: “And we haven’t had a separation for the public sector for two years.”
They made a number of other commitments during that campaign, debates that I attended with the Treasurer and others, where they made commitments. They pooh-poohed the idea that there was any significant additional staff in the Public Service that could be reduced and indicated that there would be no reductions under the government.
What has been the result of that particular promise from Treasurer Foley? Soon after that election, on 25 May 2006 on FIVEaa minister Weatherill stated:
“There are 400 people here that don’t have proper jobs that have been basically rattling around the Public Service, in many cases for a number of years. Are we to let that just roll along?”
That was in the context of justifying the offering of targeted separation packages three months after the election—when they promised that they would not be offering such packages—to up to 400 surplus people whom the minister described as ‘rattling around the Public Service’ essentially doing nothing within the public sector.
Soon after the 2006-07 budget, Treasurer Foley announced a range of savings measures leading to reductions in full-time public servant numbers of 1,571. So, there were 390 in May, and in the budget later that year there were another 1,571. In 2008-09, when the budget was released, the Treasurer announced further cuts and further cutbacks in Public Service numbers. In an article in the The Advertiser of 5 June 2008, Michael Owen, the political reporter, said:
“More than 1,000 Public Service jobs are likely to be axed as the government tries to achieve major savings to help fund its increased budget spending.”
That was based on discussions Mr Owen had with Treasury officers in the budget lock-up on that particular day. On the following day, 6 June, The Advertiser stated:
“The state government has refused to rule out hundreds of Public Service jobs being axed in its drive for major savings…Mr Foley said he was ‘taking an axe’ to bureaucracy and administration within government, which would ‘probably’ mean job cuts in future years…Mr Foley…refused to put a figure on how many jobs could go.”
The article continues:
“Treasury said ‘watch this space’ when asked if the figure could be as high as 1,000 jobs.”
This is a direct quote:
“…’watch this space’ when asked if the figure co u ld be as high as 1,000 jobs.”
Finally, in the Mid-Year Budget Review in the past six months the Treasurer has announced a further reduction of 1,600 full-time equivalent jobs over the next three years: 1,200 in the next year and then factoring up to 1,600.
Since the 2006 election, which was fought in part around reductions in the Public Service, the government took four separate decisions to reduce numbers by 390; in the 2006-07 budget, by 1,571; in the 2008-09 budget, by up to 1,000; and in the Mid-Year Budget Review, to reduce numbers by 1,600. When you add that up, the total number is approximately 4,600 full-time equivalent job positions that the Treasurer has announced since the 2006 election, when he attacked the Liberal Party’s position in relation to reducing 4,000 jobs within the public sector.
In 2002 we saw a specific promise not to increase taxes, and then that particular commitment was broken. In 2006, we saw a commitment to not cut back public sector jobs, and we have seen four separate decisions adding up to 4,600 full-time equivalents, if they are achieved; they have been announced. I think the work of the Budget and Finance Committee has demonstrated that, in some cases, they have not been achieved and they might not be achieved in the future. I am saying: look at the evidence in relation to Treasurer Foley and Premier Rann.
In the coming election in 2010 they will promise—in fact, they will go back to the 2002 promise—no increases in taxes and charges as their big commitment. They promised the world in 2002, and they broke that promise. They promised the world in 2006, and they have broken that promise. They will now promise in 2010 no increases in taxes. However, the only way these numbers can come together is if the government again breaks its promise (if it is re-elected) and if there is a significant increase in taxes and charges.
Their record is evident. They are not to be trusted. As the Treasurer says, he has the moral fibre to break promises. That is the ideology of Premier Rann, the Leader of the Government in the council (Hon. Paul Holloway) and Treasurer Foley. They are quite proud of the fact that they believe that they have the moral fibre to promise the world and to break those promises after an election. That is their morality, that is what they believe in, and that is what they live by.
What will we see from the three of them and others leading into the 2010 will again be this commitment to not increase taxes and charges. Do not believe any of them. Certainly, if the Public Service Association or people out there in the community have not already been bitten twice in 2002 and 2006, let me warn them again in 2010: whatever comes out of their mouths this time, remember the ideology and the morality of this lot. They live by the adage that they have the moral fibre to break their promises, and they are quite happy to do that after every election.