Friday, 17 November 2017

Forestry Tasmania's demise in detail

Forestry Tasmania’s slide from its peak in 2004 has seen it lose $1 billion. Almost half have been cash losses. The rest have resulted from the loss in value of the trees entrusted to it. FT entered commercial arrangements with customers, particularly major customer Gunns, which effectively forfeited its commercial advantages as a monopoly supplier. As a consequence it fortunes closely tracked those of the industry particularly Gunns, and since the latter’s demise has only survived courtesy of government patronage.

After numerous inquiries, reports and years of procrastination, the government appointed Treasury Secretary to the Board in May 2015 to act as de facto Voluntary Administrator to see if FT could be resuscitated. An interim report was presented to government on 29th September 2016.His tenure lasted until February 2017, FT was restructured as much as its political masters would allow before being handed back for directors to run under the new name of Sustainable Timbers Tasmania (STT).

The following is a more detailed report on FT’s demise following the period of administration. It covers the events leading to insolvency, the actions taken and the prospects for the future.


The 2016/17 year

The plantation sale

The superannuation transfer

Overview since 2004

Other assistance to the forest industry

The Ta Ann deception

Insolvency signs

Problems with the current model

The future

Thursday, 9 November 2017

Forestry Tasmania's final report

A survey of the wreckage left behind by Forestry Tasmania (FT) reveals since its peak in 2004 it has lost over $1 billion from forestry activities.

 During that time cash outlays were $440 million more than trading revenue and the value of the forest estate fell by over $600 million. Add the two figures together give the aggregate loss over the past 13 years of $1 billion. Equal to $40 for each tonne harvested.

Spending on plantations ($106 million), property and plant ($33 million) and roads ($105 million) added nothing to FT’s asset base. Together with the continual losses from forest harvesting meant FT’s cash losses totalled $440 million over the last 13 years.

Then there are non-cash losses, often called book losses, principally the fall in the value of the forest estate. This has occurred because a lot of trees have been chopped down and sold and because as maintenance and harvest costs rise faster than prices for forest products then the value of remaining forests consequently falls. Over the past 13 years the value of FT’s forests has fallen by over $600 million. Trees entrusted to FT are now worth a fraction of their former value.

So how did FT cover its cash losses?

Monday, 9 October 2017

Pokies: A time to be brave

Everyone is trying to pressure Opposition Leader Rebecca White to make up her mind what to do about poker machines post 2023, the government even bringing on a motion in Parliament a few weeks ago to try to embarrass her. A few weeks even a month or two isn’t going to make an ounce of difference.

All too often the overwhelming social arguments against poker machines are trumped by the gambling industry’s mantra of jobs jobs jobs. It’s important the bogus economic arguments are fully understood by Ms White.

Dear Ms White

You were right to delay framing a new position on EGMs until the Joint Committee presented its findings based on the latest evidence. That was the aim of the inquiry.

From a policy viewpoint an inquiry becomes pointless if trying to confirm predetermined policies drives the process.  Fortunately the Chair managed to keep focussed.

Confirmation bias however dominated the approach of both the Liberals and the Greens, culminating in Ms Courtney’s dissenting report arguing  that the significant reduction in EGMs in pubs and clubs recommended by four of the other five committee members would have “devastating economic and employment impacts on many businesses and communities..”.

Recommendations are supposed to be based on evidence presented. No evidence was offered by non EGM businesses stating withdrawal of some or all EGMs from communities would have adverse effects let alone devastating ones. Communities clamouring to retain EGMs to prevent devastation were also conspicuously absent.

Friday, 15 September 2017

Federal Group's pokie haul

Back in 1996 the Federal Group’s leisure business comprised the two casinos. Its revenue in that year was $134 million, well over half coming from gaming activities including tables, pokies and Keno. Net profit after tax for the leisure business was $4.4 million. The Group’s freight business provided another $2.2 million in profit. Borrowings were $50 million. In 1996 there was no spare cash to pay dividends to shareholders.

All was soon to change. On the first of January 1997 poker machines were rolled out into the community. Over the next 20 year the Group bought 12 pubs, the 9/11 bottleshop chain, built the Saffire resort, bought the leasehold business known as the Henry Jones Art Hotel, and acquired the lease on the new Maq01 hotel on Hobart’s waterfront.  The cash tsunami was such there was enough left over to pay $238 million as dividends to shareholders over the period. At the end on the 2016 year borrowings were $123 million, an increase of only $73 million over the 20 year period. Cash from pokies funded the show.

Saturday, 26 August 2017

Federal Group stitches up a deal?

The Joint Select Committee inquiry into Future Gaming Markets recently received a joint proposal from the Tasmanian Hospitality Association and the Federal Group and heard evidence from the two parties.

The proposal highlights most of the economic and financial issues at stake for the inquiry. The following note was submitted to assist the Committee in its important deliberations.

The proposal will perpetuate existing bad public policy. Benefits will accrue to the few existing participants in proportion to the benefits they have already received over the last 20 years. As a way of assisting businesses to grow it is poorly targeted. Allocating perpetual licenses to existing venues for nil consideration will not only give a windfall gain to a privileged few with unsubstantiated  benefits for the wider community, but will tie the hand of future governments if ever they feel a need to make changes.

Wednesday, 31 May 2017

State Budget: Back to the barn

Put away the Prozac. There are now surpluses as far as the eye can see.

That is the message from this year’s State budget.

Friday, 26 May 2017

Budget pork

If it sounds too good to be true it probably is.

When a government announces in a Budget that it will spend extra on health next year, is that compared to

1.   what has been spent in the current year?; or

2.   what it intended to spend a year ago?

In the case of health the answer is 2.

In last year’s budget the Tasmanian Health Service THS spending was intended to be $1,368 million in 2016/17 and $1,362 million in 2017/18.

If one looks at the Policy and Parameter Statement in this year’s budget papers (Budget Paper 1 page 67) THS’s estimated outcome for 2016/17 shows an extra $106.7 million being spent (or estimated to be spent) for 2016/17. This suggests THS spending of $1,475 million for 2016/17.

Now looking at this year’s budget papers, intended spending by THS (Budget Paper 2 vol 2 page 109) for 2017/18 is $1,460 million.  That may be $98 million more than what was intended a year ago but it is less than what was actually spent in the current year 2016/17.

If the system is in crisis spending less is unlikely to fix the problem.

That’s what Building Tasmania’s Future means. The Mercury was quite correct in depicting the Treasurer in this morning’s edition as a snake oil salesman with a warning that the tonic being marketed may contain pork.

There’s an unreality about the budget. Let’s have a look at the overall Income Statement (Budget Paper 1 page 47), in particular the figures for employee expenses. To make it easy part of the relevant table is pasted below.

I’ve added the estimated outcome figures from page 191. It easy to see the increases in employee expenses are $29 million in 2017/18 then $30 million and $31 million in the next two years.

In % terms that’s a 1% increase in each of the next 3 years. Scarcely believable when the estimated outcome for the current year 2016/17 was $60 million above budget and the Treasurer had the place ticking over like a well oiled machine. Even less credible given wage increase are tracking at a rate higher than 1%, and employment in the health area is supposed to rise.

The coming election is sure to be a pork fest.