Appendix D: Progress Against Fiscal Responsibility Act 2005 Targets and Principles1 Fiscal Targets Progress Indicator Legislative Target Status Medium-term General government sector net financial liabilities (NFL) At or below 7.5 per cent GSP by June 2010 This target was not met. The ratio of general government NFL to GSP was 12.8 per cent at June 2010. (The ratio was 12.2 per cent at June 2009). General government sector net debt Maintain as share of GSP at or below level at June 2005 (0.9 per cent of GSP) This target was not met. The ratio of general government net debt to GSP was 2.3 per cent at June 2010. (The ratio was 2.1 per cent at June 2009). General government sector net financial liabilities At or below 6 per cent of GSP by June 2015 This target will not be met. General government NFL are expected to be 10.8 per cent of GSP at June 2015. (They were 12.0 per cent at June 2011). General government sector net debt Maintain as share of GSP at or below level at June 2005 This target will not be met. The ratio of general government net debt to GSP is expected to be 2.7 per cent at June 2015. (The ratio was 1.8 per cent at June 2011). Total state sector unfunded superannuation liabilities Eliminated by 30 June 2030 Employer contributions being assessed periodically to ensure full funding by 2030. Long-term While the GFC has slowed progress, the downward trend is continuing, and full funding by June 2030 is still expected. Total state net unfunded superannuation liabilities were $33.9 billion at 30 June 2011 (7.8 per cent of GSP), and are expected to decline to $30.6 billion at 30 June 2015 (5.7 per cent of GSP). 1 For a review of performance over the first half-decade of the Act, refer to the Report of the Treasurer to the NSW Parliament on the Review of the Fiscal Responsibility Act 2005, which was tabled on 15 June 2011. Budget Statement 2011-12 D-1 Fiscal Principles Progress Indicator Legislative Target Status 1. Keeping the Budget in surplus Net operating result Net operating result in surplus The net operating result is expected to be in deficit in 2011-12 but to be in surplus in each of the following three years. 2. Constrained growth in net cost of services and expenses Growth in net cost of services (NCOS) and expenses 4-year average annual growth (1) ending with the financial year prior to the Budget year; and (2) for the Budget year and forward estimates, not to exceed long-term average revenue growth Average annual growth of the following variables for the 4-year periods ending 2010-11 and 2014-15 respectively are: Total expenses 6.2 per cent and 4.2 per cent NCOS (6.3 per cent and 4.7 per cent Long term average revenue growth is 5.2 per cent 3. Managing public sector employee costs Public sector employee costs Government policy in negotiating rates of pay and conditions to be consistent with fiscal targets The Government has amended the Industrial Relations Act to give stronger force to government policies on public sector conditions of employment, and has issued a new regulation tightening the requirement for savings offsets for any wage increases exceeding 2.5 per cent. 4. Evaluation of capital expenditure proposals Stability of capital project budgets Capital expenditure proposals to be evaluated in accordance with government procurement policy requirements Strategic and Business Case Gateway Reviews assess project planning and identify alternatives for projects over $10 million. Gateway reviews test the soundness of a project’s procurement process, with the objective of ensuring agencies have an appropriate level of procurement discipline being applied. 50 reviews were undertaken in 2010-2011 covering 77 projects valued at $7.9 billion. Since 2004, 356 reviews have been under- taken of projects valued at nearly $40 billion. Agency compliance with Gateway remains steady, 80 percent of the projects listed in the 2010-11 Budget Infrastructure Statement were reviewed at the mandated gates. However, there have been major decisions made where the business case assessment has not been properly applied. These include the now-abandoned CBD Metro and the previously proposed Parramatta to Epping Rail Line. Infrastructure NSW was established in May 2011 to improve planning and management D-2 Budget Statement 2011-12 Progress Indicator Legislative Target Status 5. Managing State finances with a view to long-term fiscal pressures The long-term fiscal gap Reporting the impact of the Budget on the long-term fiscal gap Budget Paper 6 contains an updated five-yearly assessment of long term fiscal pressures which estimates the pre-Budget long-term fiscal gap at 2.8 per cent of GSP by 2050-51. Factors in this Budget potentially reduce the fiscal gap by 1.0 point from 2.8 to to 1.8 per cent of GSP, including the National Health Agreement (by 0.6 per cent), revenue measures (by 0.1 per cent), and savings and efficiency measures (by 0.3 per cent). 6. General government net worth General government sector net worth At least maintain in real terms General government net worth increased by an average 2.1 per cent per annum in real terms from June 2001 to June 2011. 7. Superannuation liabilities Unfunded super liability of GG sector and PTE sector Manage and fund the liability to meet the long-term target, subject to periodic review See long-term fiscal targets (page 1) 8. Total asset management Best practice asset maintenance or management policies Progress reporting in budget papers on measures to implement this principle The Government uses Total Asset Management (TAM) information from the major asset-managing agencies to prioritise investments and forecast infrastructure requirements. The share of State assets held by nominated agencies that was covered by a TAM plan was 100 per cent in 2010-11. 9. Prudent risk management Financial risk management comprising total state sector: net financial liabilities contingent liabilities debt and financial assets Progress reporting in budget papers on measures to implement this principle Aggregate risk is managed by Treasury, TCorp and the NSW Self Insurance Corporation. This Includes ongoing review of asset allocation and risk management policies and procedures of authorities subject to the Public Authorities (Financial Arrangements) Act 1987. Agency and project level risk identification procedures and strategies are in place or being developed through the Financial Management Framework, the Commercial Policy Framework and Total Asset Management guidelines. Project specific risks for privately financed infrastructure projects are also managed within the National Public Private Partnerships Policy Framework. This Framework includes a Jurisdictional Requirements Volume which refers to the NSW 2006 Working with Government Guidelines for Privately Financed Projects for NSW specific requirements and NSW specific commercial risk allocation principles. Budget Statement 2011-12 D-3 Progress Indicator Legislative Target Status On 24 August 2009, NSW Treasury issued the Internal Audit and Risk Management Policy. The Policy strengthens risk management in NSW Public Sector agencies by mandating adoption of enterprise risk management, independent audit committees and risk based internal audit. Treasury is currently revising the policy to align with the latest risk management international standard and address some other issues. Additional guidance for agencies on risk management is also under development. 10. Tax restraint Impact of tax policy measures D-4 Adjustments to legislated tax rates, thresholds and bases to be made with maximum possible restraint; policies should enable predictability and stability of tax regime The net effect of tax changes since 26 March 2011 is to increase the NSW tax burden by around $1.4 billion cumulatively from 2011-12 to 2014-15. Budget Statement 2011-12