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Fiscal and Economic Outlook

2005-06

Budget Paper No. 2

Table of Contents Under Treasurer’s Certification iii

1. Overview 1

2. Fiscal Strategy 3

3. Fiscal Position and Outlook 11

4. Budget Initiatives 25

5. Australian Government Grants 39

6. Territory Own-Source Revenue 53

7. Commercial Issues 77

8. Economy Overview 95

9. Uniform Presentation Framework 111

Appendix: Classification of Entities in the Northern Territory Public Sector 131

In this book, the term ‘state’ or ‘states’ includes the Australian Capital Territory and the Northern Territory, unless the context indicates otherwise.

i

Under Treasurer’s Certification

In accordance with the provisions of the Fiscal Integrity and Transparency Act, I certify that the financial projections included in the May 2005 Budget documentation were based on Government decisions that I was aware of or that were made available to me by the Treasurer before 28 April 2005. The projections are presented in accordance with the Uniform Presentation Framework.

Jennifer Prince

Under Treasurer

29 April 2005

iii

Chapter 1

Overview This Budget Paper presents whole of government financial information and related issues and brings together information included in other Budget Papers in a consolidated form. It also meets the requirements of the Fiscal Integrity and Transparency Act (FITA) and complies with the Uniform Presentation Framework, as agreed by all Australian jurisdictions.

Fiscal Strategy The 2005-06 Fiscal Strategy and underlying targets remain unchanged from 2004-05. However, with the inclusion of the Darwin City Waterfront Redevelopment project, the expected outcomes for 2005-06 to 2007-08 have been varied to include the Territory’s commitment to this major development. The Budget is expected to return to balance in 2008-09, as planned. Net debt will increase in line with the Territory’s commitment to the Waterfront, however due to surpluses since 2002-03, the estimate in 2008-09 is consistent with the net debt level recorded in 2001-02.

A detailed discussion of the Fiscal Strategy is presented in Chapter 2 of this Budget Paper.

Updated Financial Projections Table 1.1: Estimated Outcomes – General Government

2004-05 2005-06 2006-07 2007-08 2008-09 Estimate Budget Forward Estimates

$M $M $M $M $M Cash Outcome 2004-05 Budget 0 -16 -9 -6 0 2005-06 Budget 46 -68 -53 -21 0

Operating Result 2004-05 Budget -12 -31 -18 -5 7 2005-06 Budget 23 34 51 11 6

Fiscal Balance 2004-05 Budget -29 -31 -19 -9 -6 2005-06 Budget -11 -85 -71 -16 -6

On a cash basis, the estimated outcome for 2004-05 is a surplus of $46 million. This improvement over the May 2004 estimate is due to an increase in own-source and GST revenue associated with improved economic conditions, higher specific purpose payments, and a transfer of expenditure to 2005-06 due to the delayed commencement of new programs. This surplus will be used to fund part of the Territory’s commitment to the Darwin Waterfront Redevelopment project. While the financial effect of the Waterfront redevelopment has increased the deficits in 2005-06 to 2007-08, the Budget is expected to return to balance, in line with previously announced targets, by 2008-09.

While the cash outcome will worsen due to the Waterfront commitments, the operating result will improve, as the Waterfront-related payments are largely capital costs, and do not affect the operating statement.

The fiscal balance is the key accrual measure used by other Australian jurisdictions and is calculated by removing depreciation from the operating result and including capital spending. The fiscal balance is more closely aligned with the cash outcome, with the deficit increasing in 2005-06 to 2007-08 due to the Territory’s capital contributions to the Waterfront.

1

Overview

A detailed discussion of the movements during 2004-05 and increases for 2005-06 and the three forward estimate years is included in Chapter 3. This chapter also includes a Statement of Risks, as required by the FITA.

Chapter 4 outlines the new and expanded expenditure and revenue initiatives included in the 2005-06 Budget contributing to the outcomes set out above.

Chapter 9 provides detailed consolidated financial statements, by sector, on a uniform presentation framework basis.

Revenue Projections Chapter 5 provides information on revenue from the Australian Government, including the framework within which these are provided. This includes a discussion of national tax reform issues and an emphasis on GST revenue and the significant effect this revenue has on the Territory’s fiscal outcomes.

Chapter 6 presents information on the Territory’s own-source revenue, including comparisons with other Australian jurisdictions, by tax type. This chapter also complies with the FITA by including a Statement of Tax Expenditures and presents information on non tax-related household charges.

Commercial and Economic Issues Chapter 7 outlines a number of the Government’s commercial issues including a discussion of community service obligation payments to government business divisions and dividends and taxes paid by government business divisions.

This chapter also provides details on the Darwin City Waterfront Redevelopment project, part of which is funded as a public private partnership. It complies with the FITA by including a discussion of contingent liabilities.

Chapter 8 presents an overview of the economy, with greater detail provided in the Northern Territory Economy paper.

2

Chapter 2

Fiscal Strategy Overview

The Territory’s fiscal strategy provides a sound fiscal management framework for sustainable service provision, investment in infrastructure and a competitive tax environment that supports economic growth.

The 2005-06 Fiscal Strategy is consistent with that presented in the 2004-05 Budget and provides for improved services and economic stimulus. Revised budget targets in line with the revised strategy were also set in May 2004. The Territory is currently finalising contractual arrangements for the Darwin City Waterfront Redevelopment project, which includes substantial community infrastructure, and a convention and exhibition centre delivered under a public private partnership model. The projected cash outcomes for 2005-06 to 2007-08 vary from those estimated in the 2004-05 Budget, due largely to the Territory’s contribution to stage 1 of the Darwin City Waterfront Redevelopment project. However, the other fiscal targets remain unchanged and are expected to be achieved.

Fiscal Principles The Fiscal Integrity and Transparency Act (FITA) requires the Treasurer to deliver a fiscal strategy statement at the time of each Budget which specifies the Government’s medium-term fiscal objectives and key fiscal indicators. Under the FITA, the fiscal strategy statement must be based on principles of sound fiscal management where the Government must:

• formulate and apply spending and taxation policies having regard to the effect of these policies on employment, economic prosperity and the development of the Territory economy;

• formulate and apply spending and taxing policies so as to give rise to a reasonable degree of stability and predictability;

• ensure that funding for current services is provided by the current generation; and

• prudently manage financial risks faced by the Territory (having regard to economic circumstances), including the maintenance of Territory debt at prudent levels.

These financial management principles underpin the Territory’s fiscal strategy.

2005-06 Fiscal Strategy The 2005-06 fiscal strategy remains unchanged from that presented in the 2004-05 Budget papers.

The broad strategic priority is for the Territory to be able to increase service provision to all Territorians, particularly in the areas of health, education and community safety, and continue to invest in infrastructure to stimulate economic growth while maintaining a sound financial position.

3

Fiscal Strategy

The Government’s medium-term fiscal objectives and targets are:

• Sustainable Service Provision: general government net operating balance by 2012-13;

• Infrastructure for Economic and Community Development: maintain total public sector infrastructure investment at appropriate levels and achieve a general government net lending balance by 2012-13;

• Competitive Tax Environment: ensure Territory taxes and charges are competitive with the average of the states; and

• Prudent Management of Liabilities: net debt plus employee liabilities as a proportion of total revenue to fall.

Sustainable Service Provision One of the Government’s medium-term objectives to provide improved services to all Territorians, particularly in the areas of health, education and community safety, is reflected in the 2005-06 Budget, which includes increases for health (4 per cent), education (2 per cent) and police (3 per cent) services.

Information on specific service provision initiatives approved since the 2004-05 Budget and in the development of the 2005-06 Budget is provided in Chapter 4 of this Budget Paper.

In the 2004-05 Budget the Government set cash targets for 2004-05 and forward estimates based on a deficit of $16 million in 2005-06, reducing steadily to a balanced budget by 2008-09, as well as a target of achieving a net operating balance by 2012-13 (that is, within 10 years of adopting an accrual framework in 2002-03).

Table 2.1 compares the 2004 cash targets with the latest estimates which incorporate all costs associated with the Darwin City Waterfront Redevelopment project. The net effect on the cash outcome of the Waterfront project over 2004-05 and 2005-06 is not significant, with the surplus in 2004-05 offsetting most of the additional net costs in 2005-06. Additional costs will be recorded in the following two years, worsening the previously reported targets, but the budget is expected to return to balance in 2008-09 as planned.

Table 2.1: General Government Cash Outcome and Net Operating Balance

2004-05 2005-06 2006-07 2007-08 2008-09 Estimate Budget Forward Estimate 2004 cash targets ($M) 0 -16 -9 -6 0

2005 cash targets ($M) 46 -68 -53 -21 0

Net operating balance ($M) 23 34 51 11 6

As a proportion of total revenue (%) 0.9 1.2 1.8 0.4 0.2

Source: Northern Territory Treasury

The Waterfront investment, which involves largely capital payments, has minimal effect on the operating balance. The net operating balance for 2004-05 and forward years represents an improvement in all years on those predicted at the time of the 2004-05 Budget. The improved operating result is due to increased estimates of goods and services tax (GST) revenue, following increases in estimates of total GST collections and increased population growth, together with an upward revision to own-source revenues. This has been partially offset by the taxation and spending initiatives introduced as part of the 2005-06 Budget.

The positive net operating balances in all years indicate that the target of a balance by 2012-13 will be achieved.

4

Fiscal Strategy

As a proportion of total revenue, the net operating balance is estimated to be 0.9 per cent in 2004-05 increasing to 1.8 per cent in 2006-07, before returning to a more balanced position thereafter.

By comparison with the states, Chart 2.1 shows that the ratio of the Territory’s net operating balance to revenue is projected to be only marginally below that of the states by 2005-06, indicating the improved financial performance.

Chart 2.1: State and Territory Actual and Projected Net Operating Balance as a Proportion of Revenue

Infrastructure for Economic and Community Development ing challenge for the

to

stment in infrastructure aims to meet both the Territory’s social

ovides a measure of the Territory’s investment oth

n

t ongoing investment in infrastructure, the Territory is that

ated to be -0.4 per cent in 2004-05, but is -3.2 per cent and -2.6 per cent in 2005-06 and 2006-07 respectively,

The provision of adequate levels of infrastructure is an ongoTerritory largely due to both its remoteness and its stage of development, relativethe other states.

Government inveand economic requirements.

Net lending (fiscal balance) prbalance (that is, as a lender or a borrower). Net lending includes the effect of bcapital and operating transactions after excluding the effect of depreciation.

Table 2.2: General Government Net Lending (+)/Borrowing (-)

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09Actual Estimate Budget

Net Lending (+) / Borrowing (-) ($M) -23 -11 -85 -71 -16 -6

As a Proportion of Total Revenue (%) -0.9 -0.4 -3.2 -2.6 -0.6 -0.2


Forward Estimate

The fiscal balance deficit indicates that capital spending in each year is greater thathe depreciation expense and is consistent with a developing economy such as the Territory. The effect of the Territory’s substantial capital investment associated with the Darwin City Waterfront Redevelopment project in 2005-06 through 2007-08 is evident in Table 2.2.

Despite this significanforecasting to be in a minimal net borrowing position by 2008-09, indicating the target of balance by 2012-13 will be achieved.

As a proportion of total revenue, net lending is estim

5

Fiscal Strategy

consistent with high capital investment in those years prior to returning to the more usual level of -0.2 per cent in 2008-09.

By comparison with the states, Chart 2.2 shows that the Territory’s net lending to revenue is projected to be marginally above that of the states in 2004-05 but decline in 2005-06 due to the impact of the Waterfront project.

Chart 2.2: General Government Net Lending (+)/ Borrowing (-) as a Proportion of Total Revenue

When considering capital investment in the Territory, it is more appropriate to look at the non financial public sector as this better reflects the complete picture of government spending on significant infrastructure projects.

Table 2.3 presents the actual level of infrastructure investment for 2003-04 and estimates from 2004-05 to 2008-09. The Government’s infrastructure investment including the Darwin City Waterfront Redevelopment project comprises purchases of non financial assets (including construction and capital items) and capital grants to non-government organisations.

Table 2.3: Capital Investment – Non Financial Public Sector


$M $M $M $M $M $MPurchases of Non Financial Assets 303 367 386 340 312 300Capital Grants 56 60 47 44 44 45Total 303 427 433 384 357 345


Forward Estimate

Further information on capital works projects is included in Budget Paper No. 4.

Competitive Tax Environment The Government is committed to maintaining a competitive tax environment to encourage increased levels of business activity in the Northern Territory.

In the 2005-06 Budget, the Government has announced several revenue measures to stimulate economic and employment growth and to meet national tax reform agreements. A more detailed analysis of these revenue initiatives is provided in Chapter 4 of this Budget Paper.

In order to assess the competitiveness of the Territory’s tax system, the following measures are utilised:

• taxation revenue per capita; and

6

Fiscal Strategy

• taxation effort as assessed by the Commonwealth Grants Commission (the Commission).

Taxation revenue per capita is a simple summary measure that affords comparability with other jurisdictions.

Table 2.4 shows that the Territory’s tax collections per capita for 2005-06 are estimated at $1474, compared with $2031 for the average of the other states.

This also highlights that the Territory in 2005-06 is expected to collect the second lowest per capita tax revenues after Tasmania.

Table 2.4: Taxation Revenue Per Capita – General Government

2003-04 2004-05 2005-06

$ per capita $ per capita $ per capita New South Wales 2 237 2 252 2 348 Victoria 2 050 2 059 2 049 Queensland 1 737 1 690 1 645 Western Australia 2 096 1 990 1 919 South Australia 1 834 1 859 1 851 Tasmania 1 314 1 409 1 381 Australian Capital Territory 2 332 2 183 2 397 State Average 2 027 2 016 2 031 Northern Territory 1 326 1 466 1 474

Source: Northern Territory Treasury, Western Australia Pre-Election Financial Projections Statement, State Mid-Year and Outcome Reports.

Although taxation per capita is a useful comparative measure, it is limited in that it does not make any allowances for differences in states’ capacities to raise revenue.

A more sophisticated measure of tax competitiveness is the Commission’s analysis of ‘tax effort’, which adjusts for the extent to which a particular state’s capacity to raise revenue is above or below average. Table 2.5 details the Territory’s revenue-raising capacity and effort expressed as a percentage of the Australian average in 2003-04, the latest year assessed by the Commission.

Table 2.5: Northern Territory Revenue-Raising Capacity and Effort 2003-04 Australian Average = 100 per cent

Capacity1 Effort2

% % Total Taxation 77 91 Total Own-Source Revenue 89 94

Source: Commonwealth Grants Commission 2005 Update

1 Northern Territory’s capacity to raise revenue compared to the Australian average.

2 Northern Territory’s revenue effort compared with the Australian average, given the capacity available.

The Commission’s assessment shows that the Territory’s tax effort (91 per cent) is below the Australian average (100 per cent). While being below the national average this, together with the Territory being the second lowest taxing jurisdiction after Queensland, demonstrates that the Territory continues to provide a competitive tax environment for all Territorians.

Further interjurisdictional comparisons of individual tax revenue measures and a more detailed synopsis of the methodology used by the Commission are provided in Chapter 6 of this Budget Paper.

7

Fiscal Strategy

Prudent Management of Liabilities This component of the Fiscal Strategy aims to ensure prudent management of debt, while promoting increased service delivery and continued investment in infrastructure needed to promote social wellbeing and economic growth.

The broader non financial public sector scope is used when measuring net debt, rather than the general government sector. This broader focus is appropriate as this better reflects the complete allocation of assets and liabilities across government and assists when benchmarking the Territory against other jurisdictions.

Net debt is gross borrowings less certain financial assets. Net debt is projected to increase in line with the contributions to the Darwin City Waterfront Redevelopment project. However, even after this substantial investment, the net debt level in 2007-08 will be comparable to the level recorded in 2001-02. Although the Territory’s net debt to revenue ratio is higher than the states’, having regard to the greater requirement for infrastructure investment, the Territory’s ratio is improving gradually over time.

Chart 2.3: Net Debt to Revenue – Non Financial Public Sector

tage of

e cash

’s commitment to prudently manage

e

Net Debt plus employee entitlements is a broader measure than net debt in that it encompasses unfunded employee entitlements, consisting largely of unfunded superannuation, which is a major liability for the Territory and most states.

Since 2001-02 the level of net debt plus employee entitlements as a percenrevenue has dropped from 134 per cent at 30 June 2002 to 118 per cent at 30 June 2004. This is as a direct result of the deficit reduction strategy and thsurpluses achieved in 2002-03 and 2003-04.

Table 2.6 shows the effect of the Governmentdebt and employee liabilities. This highlights that the level of net debt plus employee liabilities as a percentage of revenue will continue to drop from th2003-04 outcome of 118 per cent to 107 per cent by 2008-09.

8

Fiscal Strategy

Table 2.6: Northern Territory Net Debt Plus Employee Liabilities – Non Financial Public Sector

the states have now closed their unfunded

a

rmation on budget aggregates and financial projections that underpin


Net Debt ($M) 1 656 1 653 1 718 1 761 1 787 1 781Net Debt to Revenue (%) 57 54 55 55 54 52Employee Liabilities ($M) 1 797 1 825 1 839 1 851 1 859 1 865Net Debt + Employee Liabilities ($M) 3 453 3 478 3 557 3 612 3 646 3 647Net Debt + Employee Liabilities to Revenue (%)

118 114 113 112 110 107


Forward Estimate

This declining trend results from increased investments in infrastructure and service provision initiatives being more than offset by a smaller increase in employee liabilities and higher revenue growth.

In addition, although the Territory and defined benefit superannuation schemes, some states have also embarked on partially funding these significant unfunded superannuation arrangements. As result, despite recent cash surpluses and the introduction of the deficit reduction strategy, Territory debt levels remain high relative to the states, as shown in Chart 2.3.

Further infothe Territory’s fiscal strategy are included in Chapter 3 of this Budget Paper.

9

Chapter 3

Fiscal Position and Outlook This chapter presents information on the financial statements for the 2004-05 Estimate,

the 2005-06 Budget and three forward estimate years. It also provides a discussion of the

movement between estimates and between years and possible risks to the Territory

Budget.

The discussion on the cash targets and operating statement focuses on the general

government sector as this is the sector supported by tax revenues and provides the core

services of government.

The majority of Territory assets and liabilities are located in the general government

sector because of the comparative stage of Territory development. However, in most

states, a significant level of assets and liabilities are held within their public non financial

corporation sector, making comparative analysis of either sector’s balance sheet difficult.

Therefore, the discussion on the balance sheet focuses on the non financial public sector

(includes both the general government and non financial public corporation sectors), as

it provides a better basis for comparative analysis of the Territory’s financial position

with other states.

Fiscal Outlook Table 3.1 presents the key fiscal aggregates, by the appropriate sector.

Table 3.1: Key Fiscal Aggregates 2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget Forward Estimate

$M $M $M $M $M

GENERAL GOVERNMENTRevenue 2 677 2 752 2 820 2 904 2 979

Expenses 2 654 2 718 2 769 2 893 2 973

Net Operating Balance 23 34 51 11 6Net Acquisition of Non Financial Assets 34 119 121 26 12

Net Lending/Borrowing (Fiscal Balance) - 11 - 85 - 71 - 16 - 6

Operating Receipts 2 688 2 750 2 818 2 896 2 978

Operating Payments 2 469 2 563 2 610 2 746 2 817Net Cash Flows from Investments in Non Financial Assets

- 169 - 230 - 203 - 156 - 159

Finance Leases and Similar Arrangements - 3 - 25 - 58 - 15 - 1

Cash Surplus (+) / Deficit (-) 46 - 68 - 53 - 21 0

NON FINANCIAL PUBLIC SECTORTotal Assets 6 485 6 625 6 799 6 859 6 922

Total Liabilities 4 308 4 369 4 452 4 465 4 488Net Worth (Assets - Liabilities) 2 176 2 255 2 347 2 394 2 434

Net Debt 1 653 1 718 1 761 1 787 1 781Net Debt + Employee Liabilities 3 478 3 557 3 612 3 646 3 647

The net operating balance for 2004-05 and forward years represents an improvement in

all years on the estimate at the time of the 2004-05 Budget. This is largely as a result of

increases in GST revenue from the Australian Government, following increased growth

in the GST pool, the effect of the 2005 Update of Relativities and a significant increase in

population growth estimates. There has also been an increase in own-source revenue

due to increased economic activity. These revenue increases have been partially offset

by the taxation and spending initiatives introduced as part of the 2005-06 Budget and

11

Fiscal Position and Outlook

will be used for the Territory’s contribution to the Darwin City Waterfront

Redevelopment project. As most of these payments are for capital purposes, rather than

operating, they do not affect the operating balance.

Both the fiscal balance and cash surplus provide a more comprehensive assessment of

the Territory’s fiscal performance as they include the effects of capital as well as

operating transactions.

As explained in Chapter 2, the fiscal strategy targets were reset in 2004-05 to allow for

increased service delivery and to provide economic stimulus. From 2005-06 the deficit

targets through to 2007-08 have increased due to the Darwin City Waterfront

Redevelopment project. Despite this, the Territory is forecasting to be in a balanced cash

position and to have a small fiscal balance deficit by 2008-09.

Net debt is set to rise by $128 million over the period 2004-05 to 2008-09 to

$1781 million, an increase of $28 million on the level of net debt in 2001-02.

Net worth is expected to increase by $258 million over the period 2004-05 to 2008-09

reflecting the continued significant investment in assets. Further analysis of the key fiscal

aggregates and outlook is provided in Chapter 2 and the remainder of this chapter.

Operating Statement and Cash Flow Statement – General Government Sector

The key difference between the operating statement (accrual) and the cash flow

statement (cash) are the non-cash costs included in the operating statement, the capital

costs included in the cash flow statement and timing differences between the two.

Table 3.2 provides a comparison of revenue and expenses in the operating statement

with operating receipts and payments in the cash flow statement.

Table 3.2: General Government Operating Statement and Cash Flow Statement

Accrual Cash

2004-05 2005-06 2004-05 2005-06

Estimate Budget Estimate Budget

$M $M $M $M

Taxation Revenue 295 300 295 299 Taxes ReceivedSales of Goods and Services 104 98 104 98 Sales of Goods and Services

Grants and Subsidies 2 136 2 218 2 137 2 218 Grants and Subsidies ReceivedInterest and Other Income 142 137 152 135 Other Receipts

Total Revenue 2 677 2 752 2 688 2 750 Total Operating Receipts

Employee/Operating Expenses 1 707 1 788 1 748 1 860 Payment for Goods and Services

Current and Capital Transfers 598 585 594 585 Grants and Subsidies Paid

Other Interest Expenses 127 118 127 118 Interest PaidNon Cash Expenses (a) 222 227

Total Expenses 2 654 2 718 2 469 2 563 Total Operating Payments

NET OPERATING BALANCE 23 34 218 187 NET CASHFLOWS FROM OPERATING

FISCAL BALANCE - 11 - 85 46 - 68 SURPLUS (+) / DEFICIT (-)

(a) Depreciation and nominal superannuation interest expense.

12


The main difference between total revenue and total operating receipts is due to timing

of receipts of dividends and tax equivalents from government businesses.

Total expenses are higher than total operating payments due to the non-cash costs of

depreciation and nominal superannuation interest expense included in the operating

statement.

The fiscal balance in the operating statement takes into account purchases and sales of

non financial assets as does the surplus/deficit in the cash flow statement.

Table 3.3 shows the movement in both the cash outcome and operating balance since

the May 2004 Budget. Variations are categorised by parameter and policy effects. Policy

variations are the result of a direct decision of Government, parameter variations are due

to influences outside the Government’s control, such as increases in own-source

revenue due to greater economic activity and timing of receipts from the Australian

Government.

13


Table 3.3: Variations to the Cash Flow and Operating Statements since May 2004

Cash Accrual Cash Accrual

$M $M $M $M

2004-05 BUDGET -0.4 -11.9 -15.8 -30.6

RECEIPTS/REVENUEReceipt/Revenue Policy DecisionsFirst Home Owner Stamp Duty Concession -2.7 -2.7Total Policy 0.0 0.0 -2.7 -2.7ParameterTaxation 30.9 30.9 35.1 35.1General Purpose Payments – GST 46.6 46.6 79.2 79.2Specific Purpose Payments 19.5 19.5 -2.1 -2.1Mining Royalties 3.0 3.0 10.7 10.7Sales of Goods and Services 13.4 11.5 4.5 2.5Timing of Tax Equivalents Regime Payment 13.0Other 17.1 8.2 14.1 4.4Total Parameter 143.4 119.6 141.5 129.8TOTAL RECEIPTS/REVENUE 143.4 119.6 138.8 127.1

PAYMENTS/EXPENSESPayment/Expense Policy DecisionsWaterfront Redevelopment Costs 15.8 6.9 57.1 6.1Volatile Substance Abuse Programs 1.4 1.4 2.5 2.5Strategic Asset Planning Fund 2.0 2.0 2.0 2.0Establishment Packages for Regional Authorities 3.0 3.0Additional Capital Works Funding 17.7 42.02004 EBA Outcomes 11.5 11.5 12.3 12.3Additional Repairs and Maintenance Funding 7.1 7.1Building Better Schools Initiatives 3.4 3.4 9.4 9.4CDU – Trade School Funding 1.5 1.5Community Service Obligation Payments 3.6 3.6 7.7 7.7Relocation of Fuel Terminals to East Arm 3.0 3.0Palmerston Recreation Centre – Stage 1 5.0Jobs Plan 2 2.0 2.0Additional Funding for Alice Springs Hospital 1.9 1.9 1.9 1.9Additional Funding for Department of Employment, Education and Training

4.0 4.0 3.0 3.0

Increased Housing Allowance for Police 1.4 1.4 2.0 2.0Upgrade of Government Payroll System 1.3 1.3 1.0 1.0Other 3.0 5.7 8.4 9.2Total Policy 70.1 46.1 163.0 75.7Parameter and Treatment ChangesCarryover from 2003-04 29.5 26.3 4.8 2.9Carryover to 2005-06 -15.8 -8.1 15.8 8.1Depreciation -7.2 -7.0Updated CPI -1.7 -1.7Additional Productivity Dividend -5.3 -5.3Specific Purpose Payments 25.0 25.3 4.6 2.1One-off Funding for Legal Costs:

– Department of Justice 3.0 3.0– Department of Infrastructure, Planning and Environment

2.9 2.9

Treatment Changes 14.1 2.0Increased take up of First Home Owners Grants 1.0 1.0 1.0 1.0Remote Power Generation – Fuel Costs 3.5 3.5Total Parameter and Treatment Changes 49.0 60.9 19.3 2.2Treasurer's Advance -22.5 -22.5 -15.1 -15.0Finance Lease Liability 23.9TOTAL PAYMENTS/EXPENSES 96.6 84.5 191.1 62.9

TOTAL VARIATION 46.8 35.1 -52.3 64.2

2005-06 BUDGET 46.4 23.2 -68.1 33.6

2004-05 2005-06

14


General government operating revenue (accrual) has increased from the 2004-05

Budget by $119.6 million in 2004-05 and $127.1 million in 2005-06. The main variations

in revenue include:

• upward revision to Territory tax revenue of $30.9 million in 2004-05 and $35.1 million

in 2005-06, due to increased economic activity resulting in higher payroll tax revenue

and conveyancing duty;

• additional GST revenue of $46.6 million in 2004-05 and $79.2 million in 2005-06 as a

result of higher population growth in the Northern Territory, an increase in the GST

pool available for distribution, and the effect of the 2005 Update of Relativities;

• increased specific purpose payments of $19.5 million in 2004-05 including

$12.8 million in health related grants, $4 million in education grants, and the balance

in a range of agencies;

• increased mining royalty revenue of $3 million in 2004-05 and $10.7 million in 2005-06

due to increased production and prices;

• increased sales of goods and services revenue of $11.5 million in 2004-05 and

$2.5 million in 2005-06 due to an increase in hospital receipts of $4.6 million and

$1 million in 2004-05 and 2005-06 respectively, one-off project revenue from the

Australian Government of $2.5 million in 2004-05, and a number of minor increases

across various agencies in both years; and

• an increase in other revenue including interest, dividends and tax equivalents from

government businesses.

General government operating receipts (cash) have increased from the 2004-05 Budget

by $143.4 million in 2004-05 and $138.8 million in 2005-06. The increment in operating

receipts is higher than operating revenue due to timing of dividends and tax equivalents

received from government businesses.

General government expenses (accrual) have increased by $84.5 million in 2004-05 and

$62.9 million in 2005-06, while payments (cash) have increased by $96.6 million in

2004-05 and $167.2 million in 2005-06 (net of finance lease liability). The main variations

include:

• the net carryover of expenses of $18.2 million into 2004-05 and $11 million in 2005-06,

largely related to timing of Australian Government funding, the carryover in the cash

flow differs to the operating statement as it includes capital items;

• the cash flow statement includes a variation of $17.7 million in 2004-05 and

$42 million in 2005-06 for additional capital works. This includes capital funding for

roads, East Arm Port, and increases to a number of education, health and justice

projects;

• funding of $6.9 million in 2004-05 and $6.1 million in 2005-06 for the Darwin City

Waterfront Redevelopment project operational expenses largely related to project

management, land rehabilitation costs, insurance, legal costs, marketing and fees for

the Darwin Convention and Exhibition Centre, capital costs of $8.9 million in 2004-05

and $51 million in 2005-06 are included in the cash flow statement;

• expenses related to specific purpose payments have increased by $25.3 million in

2004-05 and $2.1 million in 2005-06 partially due to the increased revenue from the

Australian Government, along with a transfer of expenditure commitments between

years;

• additional funding of $1.9 million for the Alice Springs Hospital to provide increased

staffing and operational capacity;

• one-off funding of $3 million in 2004-05 for the Department of Justice to meet higher

than expected legal costs;

15


• additional funding capacity of $4 million in 2004-05 and $3 million in 2005-06 for the

Department of Employment, Education and Training for additional short-term

initiatives;

• one-off funding of $2.9 million in 2004-05 for legal costs for the Department of

Infrastructure, Planning and Environment;

• depreciation expenses have decreased by $7.2 million in 2004-05 and $7 million in

2005-06 consistent with lower actual valuation data in the 2003-04 financial year; this

affects the operating statement but not the cash flow statement;

• treatment changes of $14.1 million are due to revised accounting treatment where

costs previously classified as capital, are now expensed from items being transferred

from capital to operational;

• increased employee expenses of $11.5 million in 2004-05 and $12.3 million in 2005-06

as a result of renegotiated enterprise bargaining agreements; and

• additional repairs and maintenance funding of $7.1 million in 2005-06.

In addition to the above, there have been a number of cabinet decisions since May 2004:

• funding for the Volatile Substance Abuse programs of $1.4 million in 2004-05 and

$2.5 million in 2005-06;

• establishment of a strategic asset planning fund of $2 million from 2004-05 to assist

agencies in the development of their long-term strategic asset plans;

• provision of $3 million towards establishment packages of three regional authorities

in 2004-05;

• implementation of Building Better Schools initiatives in response to the priority

education implementation of the secondary education review totalling $3.4 million in

2004-05 and $9.4 million in 2005-06;

• additional funding to Charles Darwin University of $1.5 million in 2005-06 for

traditional trade training;

• increased community service obligation funding of $3.6 million in 2004-05 and

$7.7 million in 2005-06, for growth in the essential services pensioner concession

scheme, security infrastructure at the city wharves and upgrades and construction of

Government employee housing;

• provision of $3 million in 2005-06 associated with the relocation of fuel terminals from

Francis Bay to the East Arm Port precinct;

• capital grant of $5 million in 2005-06 for stage 1 of the Palmerston Recreation Centre;

• additional ongoing funding of $2 million from 2005-06 for Jobs Plan 2: Building the

Northern Territory Workforce initiative;

• funding of $1.4 million in 2004-05 and $2 million in 2005-06 for an increase in housing

allowance to eligible police members; and

• provision of funding of $1.3 million in 2004-05 and $1 million in 2005-06 to upgrade

the Government’s payroll system.

16


2005-06 Budget and 2006-07 to 2008-09 Forward Estimates

Basis of Forward Estimates Agency budgets are developed from a forward estimates model consistent with that

used in other jurisdictions. These estimates are maintained and adjusted by inflator and

deflator factors as necessary, forming the basis for Government resource and policy

decisions during the Budget development phase. New policy decisions, and funding

decisions linked to anticipated demand changes are added to each agency’s base and

then flow through to adjusted estimates for the forthcoming year.

The forward estimates model adopts the approach of using the current year Budget as a

base and rolling the estimates into forward years. The current Budget is developed from

what was previously a forward estimate. This eliminates the necessity for agencies to

develop a zero based budget every year. It also provides the basis for the Government’s

fiscal strategy.

The forward estimates are developed on a no policy change basis. In accordance with

the Fiscal Integrity and Transparency Act five years of estimates are maintained and used

by Government, both as a planning and an operational tool. The main inflator and

deflator factors used to adjust estimates are:

• Consumer Price Index (CPI) – inflator;

• wages – inflator; and

• productivity dividend – deflator.

The CPI factor is applied generally to operational items and 25 per cent of grants and is

provided in recognition that prices will increase and agencies will generally require more

operational funds in future years. For 2005-06 the applicable CPI used to develop the

Budget is 1.6 per cent, being CPI growth in calendar year 2004 compared with calendar

year 2003. This year-on-year growth compares a full year of CPI outcomes with the

preceding year while annual growth compares one quarter with the corresponding

quarter of the preceding year. The year-on-year measure is more stable, as the impact of

‘shocks’ that may adversely affect one quarter are spread over more observations.

Although it is recognised that there will be timing differences between the CPI factor

used for budget purposes and CPI in the budget year, the method adopted provides for

reliability and predictability for agencies and will produce more stable outcomes over

time. A CPI estimate of 2.5 per cent is used for the forward estimate period and is

adjusted to the actual CPI growth as each forward estimate year becomes the Budget

year.

The wage factor is applied to employee costs and 75% of grants and is based on the

latest enterprise bargaining agreement, or 3 per cent if there is no applicable enterprise

bargaining agreement. For 2005-06 and the forward estimates, wages growth is set at

3 per cent.

The productivity dividend is usually applied to operational and employee costs

premised on agencies improving processes and delivering services more efficiently, as is

the case with private sector enterprises. A dividend of 2 per cent has been applied over

the Budget and forward estimates period.

Recognition is given to the limited capacity of certain core service agencies, whose

budgets primarily comprise fixed staff costs, to achieve greater efficiencies and thus to

reduce costs. These agencies are the Department of Health and Community Services, the

Department of Employment, Education and Training, the Northern Territory Police, Fire

and Emergency Services and the Correctional Services component of the Department of

Justice, which provide the key essential services of health, education and public safety

17


across Government. Each of these agencies has a reduced productivity dividend applied

that is one quarter of the usual dividend.

General Government Sector Operating and Cash Forward Estimates The following section outlines the growth in the forward estimates for the components

of the operating statement and cash flow statement.

Operating Revenue / Receipts Table 3.4 provides a breakdown of operating revenue for 2005-06 to 2008-09. A

discussion of the key components and movements across years follows.

Table 3.4: General Government Sector Operating Revenues

2005-06 2006-07 2007-08 2008-09

Budget Forward Estimate

$M $M $M $M

RevenueTaxation Revenue 300 306 305 310

Current Grants and Subsidies 2 150 2 210 2 291 2 361

Capital Grants 67 69 70 71

Sales of Goods and Services 98 99 100 102

Interest Income 16 16 16 17

Other 121 120 121 119

Total Revenue 2 752 2 820 2 904 2 979Year on Year Percentage Increase (%) 3 2 3 3

ReceiptsTaxes Received 299 305 305 310

Sales of Goods and Services 98 99 102 104

Grants and Subsidies 2 218 2 278 2 361 2 432

Other Receipts 135 135 129 132

Capital Receipts 34 30 34 34

Total Receipts 2 784 2 848 2 931 3 012Year on Year Percentage Increase (%) 5 2 3 3

Operating revenue and receipts are both estimated to grow at between 2 per cent and

3 per cent over the forward estimate period. This growth is largely driven by the growth

in GST revenue, a revenue source over which the Territory has no influence.

The Territory has the greatest exposure to volatility in GST revenue as this makes up

almost 66 per cent of total revenue. The balance of Territory revenue consists of

14 per cent in specific purpose payments from the Australian Government and

20 per cent in Territory own-source revenue. In comparison, own-source revenue in

other jurisdictions contributes around 52 per cent of total revenue.

In 2005-06, Territory taxes comprises 11 per cent of total revenue, declining to

10 per cent from 2007-08. The remaining 9 per cent consists of sales of goods and

services, interest, royalties and dividends and taxes from government business.

For 2006-07, taxes are expected to rise by almost 2 per cent. This is due to an increase in

payroll tax revenues of just over 2 per cent due to continuing major projects resulting in

greater employment and an expected growth of 2.5 per cent for conveyancing duty,

offset by the further rise in the payroll tax threshold and removal of stamp duty on

leases, franchises and unquoted marketable securities.

18


In 2007-08, there is a decline in total taxation revenue due to the removal of stamp duty

on hiring arrangements from 1 July 2007, with 2008-09 returning to moderate growth of

1.7 per cent.

Grants and subsidies are expected to grow by 3 to 4 per cent, with most of this growth

attributable to GST revenue. There is minimal increase in specific purpose payments

from the Australian Government, due to a number of significant agreements currently

under negotiation. Once the agreements have been finalised, the associated revenue

and expenses will be incorporated into the Budget and forward estimates.

Sales of goods and services is increasing at a rate between 1 and 2 per cent over the

forward estimate period, reflecting moderate growth expectations.

Interest income is stable at $16 million from 2005-06 to 2007-08, increasing to

$17 million in 2008-09. This income varies with interest rate movements and is

dependent on the level of cash balances.

Other revenue includes mining royalties, dividends and tax equivalents from public

financial and non financial corporations.

The cash flow statement also includes capital receipts. These are largely sale of vehicles

and land. These estimates are almost static over the forward estimates period.

Operating Expenses / Payments Table 3.5 shows general government sector operating expenses for 2005-06 and forward

years.

Table 3.5: General Government Sector Operating Expenses 2005-06 2006-07 2007-08 2008-09


$M $M $M $M

ExpensesDepreciation 137 140 145 148

Employee Expenses 1 093 1 112 1 143 1 172

Other Operating Expenses 695 727 803 838

Nominal Superannuation Interest Expense 90 90 91 91

Other Interest Expense 118 115 117 123

Current Transfers 521 527 537 543

Capital Transfers 65 57 57 58

Total Expenses 2 718 2 769 2 893 2 973Year on Year Percentage Increase (%) 2 2 4 3

PaymentsPayments for Goods and Services 1 860 1 911 2 033 2 093

Grants and Subsidies Paid 585 585 595 601

Interest Paid 118 114 119 123

Purchases of Non Financial Assets 264 233 191 194

Total Payments 2 827 2 843 2 937 3 010Year on Year Percentage Increase (%) 6 1 3 3

Operating expenses are expected to grow by 2 per cent in both 2005-06 and 2006-07,

4 per cent in 2007-08 and 3 per cent in 2008-09. This increase is largely due to policy

decisions. New initiatives starting in 2005-06 that are of a recurrent nature have a flow

on effect to the forward estimates. 2005-06 includes $11 million in carryover from

previous years.

Over the forward estimates period, employee expenses are estimated to increase by

around 3 per cent per annum.

19


Growth in operating expenses is around 5 per cent. This includes forecast increases in

existing obligations as well as a contingency allowance. This approach is consistent with

other jurisdictions with the contingency amount being around 1 per cent of operating

expenses, ongoing from 2006-07. It recognises that once Government policy decisions

are implemented, there is the potential for costs to be higher than initial expectations,

and allows some capacity for minor fluctuations in revenue estimates including GST

revenues, acknowledging the volatility and importance of these receipts, without

necessarily affecting the fiscal targets.

Current and capital transfers, or grants and subsidies paid, tend to reflect growth in

specific purpose payments from the Australian Government. As discussed above, there

are a number of significant agreements under negotiation and the forward estimates

will incorporate the effect of these agreements, once they are finalised.

As with receipts, the cash flow statement includes capital payments. The Budget for

2005-06 shows a 6 per cent increase on 2004-05 due to the investment in the

Waterfront, with 2006-07 also high for this reason. In 2007-08 capital repayments return

to a usual level of infrastructure spending.

Balance Sheet – Non Financial Public Sector Table 3.6 provides a summary of assets, liabilities and balance sheet measures for the

non financial public sector.

Table 3.6: Non Financial Public Sector Balance Sheet

2005-06 2006-07 2007-08 2008-09


$M $M $M $M

Total Assets 6 625 6 799 6 859 6 922

Financial Assets 941 998 1 022 1 081

Non Financial Assets 5 683 5 801 5 837 5 841

Total Liabilities 4 369 4 452 4 465 4 488

Net Worth (Assets - Liabilities) 2 255 2 347 2 394 2 434

Net Debt 1 718 1 761 1 787 1 781

Year on Year Percentage Increase (%) 4 3 1 0

Net Worth

Net worth is expected to increase over the forward years by $179 million to

$2434 million in 2008-09. This increase largely represents the continuing significant

investment in infrastructure across the Territory including the Darwin City Waterfront

and expects that the stage 1 community infrastructure and Convention and Exhibition

Centre will be completed during the period, 2005-06 to 2007-08.

Net Debt

The Territory is still a developing economy compared to other jurisdictions and as such

has a greater call on debt financing to further enhance its infrastructure requirements.

As a result the Territory’s current level of debt is higher than other jurisdictions. This

continuing investment in infrastructure predominantly accounts for the increase in net

debt to $1781 million by 2008-09, similar to the level in 2001-02, and takes into account

the Darwin City Waterfront Redevelopment project.

Statement of Risks The Fiscal Integrity and Transparency Act requires that the Fiscal Outlook Report (Budget)

must contain “a statement of risks, quantified as far as practical, that could materially

20


affect the updated financial projections, including any contingent liabilities and any

Government negotiations that have yet to be finalised.”

This statement outlines the potential effect of risks to the Budget due to changes in

revenue and expense estimates and the likelihood of contingent liabilities becoming

actual liabilities.

Revenue

GST Revenue One of the largest risks to the Territory’s 2005-06 Budget estimates is variation in GST

revenue. As GST revenue represents about 66 per cent to the Territory’s total revenue

base, movements in GST estimates have a significant effect on the Government’s

funding capacity and budget outcome.

The estimation of GST revenue in any year is difficult due to the lack of historical data on

total GST revenue collections, and volatility in the variables that determine the

distribution of GST among the states. Each of the variables are provided below, with the

risk to these components discussed.

• National GST revenue collections –The 2005-06 Budget and forward estimates of GST

revenue collections are based on the most recent advice from the Australian

Government, being 5.2 per cent and 5.3 per cent in 2005-06 and 2006-07 respectively.

A more conservative growth in GST collections of 4.5 per cent, if realised, would

reduce the Territory’s GST revenue by $10.5 million in 2005-06 and $22.6 million in

2006-07.

• Territory’s share of the national population – Population estimates over the budget

and forward estimates period are based on Northern Territory Treasury projections.

These remain conservative when compared to long term average growth and the

Australian Government’s current forecasts of between 1.1 and 1.3 per cent growth per

annum. The downside-risk is that if annual population growth were 0.2 percentage

points below Budget estimates, the impact on GST revenue would be $3.7 million in

2005-06 and $7.6 million in 2006-07.

• Territory’s per capita relativity as assessed by the Commonwealth Grants Commission

– The Territory’s per capita relativity for 2005-06 has been assessed by the

Commonwealth Grants Commission at 4.26682. A reduced relativity has been factored

into the forward estimates, therefore there is minimal additional risk associated with

this component.

It is important to note that while the risks associated with these factors have been

identified and quantified, positive movements in any of these elements would improve

the result in fiscal outcomes.

A more detailed discussion of the risks to GST estimates is presented in Chapter 5 of this

Budget Paper.

Specific Purpose Payments Specific purpose payment agreements pose risks to state budgets in several ways. The

Territory’s budgetary flexibility is restricted by certain features of specific purpose

payment agreements, such as matching and maintenance of effort provisions, which are

used by the Australian Government to leverage its own financial commitments.

Inadequate indexation of specific purpose payment grants can also cause pressure on

state budgets, particularly where the injection of Australian Government specific

purpose payment funding generates a rate of growth in demand for services which is

more rapid than the rate of growth in Australian Government funding.

21


Through fixed-term specific purpose payment agreements, it is also possible for the

Australian Government to seed-fund programs, leaving state governments to meet the

financial burden when the original agreements expire.

The level of financial risk relating to SPP agreements cannot be quantified.

Own-Source Revenue The amount of revenue received from Territory taxes and royalties is dependent upon

the performance of the Territory economy and other external factors. Forecasting such

revenue involves judgements and assumptions being made about the performance of

the various economic factors and indicators that impact directly on Territory taxes and

royalties, such as growth in wages, employment and prices.

It is difficult to accurately predict revenue collections into the future, particularly for the

later years of the forward estimates. The most difficult source of revenue to forecast is

conveyance stamp duty, as it is linked to activity in the property market, which can be

volatile. It is considered that the unusually high activity in the property market

experienced since 2003-04 will continue throughout 2005-06, however, the extent and

timing of any drop in activity is difficult to predict and could have a significant impact on

conveyance stamp duty collections.

It is estimated that a variation of ±1 per cent to the parameters used to forecast Territory

taxes and royalties would affect revenue by about $3 million for 2005-06.

Expenses The forward estimates for expenses are based on known policy decisions, with

adjustments for parameters.

The parameters used in the 2005-06 Budget are wages growth of 3 per cent, CPI of

1.6 per cent for 2005-06 and 2.5 per cent from 2006-07 and a productivity dividend of

2 per cent.

The most significant risk to these estimates on the expense side are increasing budget

pressures due to increased cost and demand influences.

The commencement of the Darwin City Waterfront Redevelopment project presents a

risk to the expense estimates in as far as interest rate fluctuations effect the payments

over the life of the Public Private Partnership agreement. This risk is not expected to be

significant and will be reassessed each year.

A further risk is in relation to any future enterprise bargaining agreements. A wage

inflator of 3 per cent is currently factored into the forward estimates, however any

agreements over this amount will affect future budget outcomes.

International Financial Reporting Standards From 1 July 2005 all entities preparing general purpose financial reports based on

Australian Accounting Standards must comply with Australian equivalents to

International Financial Reporting Standards (IFRS). The harmonisation of these new

standards with those under the Government Finance Statistics (GFS) framework, on

which basis the Territory’s Budget is presented, is continuing.

While the Territory Government is actively monitoring the proposed changes, no

adjustments have been made in the 2005-06 Budget papers for any consequential effect

of the adoption of the new standards, pending finalisation of the harmonisation project.

The impact of the changes cannot be quantified at this stage, however it is assessed that

the most significant risks posed are the potential for increased volatility in the

measurement of unfunded superannuation liabilities and certain financial instruments.

22


Contingent Liabilities Contingent liabilities are costs that Government is required to meet should a particular

event occur. Usually, contingent liabilities consist of guarantees and indemnities, as well

as legal and contractual claims, and constitute risk to the Territory's financial position.

Details of estimated amounts, at 30 June 2004, of material contingent liabilities resulting

from guarantees or indemnities include:

• Amadeus Basin to Darwin Gas Pipeline ($261 million);

• Pine Creek/McArthur River Electricity Purchase Agreements ($101 million); and

• Public Trustee Common Fund ($26 million).

There are also some risks in relation to the Darwin City Waterfront Redevelopment

project that may result in payments being made by the Territory. These risks relate to

discriminatory changes in law, native title and environmental clean-up costs. The

amount of these risks is unable to be estimated accurately but provision has been made

in the forward estimates for environmental clean up costs and it is within the Territory's

discretion whether to make a discriminatory change in law.

For more information on contingent liabilities, refer to Chapter 7 of this Budget Paper.

23

Chapter 4

Budget Initiatives Overview

This chapter summarises the Government’s new and expanded initiatives for expenditure and revenue included in the 2005-06 Budget, along with the significant new works on the 2005-06 Capital Works Program. This listing does not include items that were announced in the 2004-05 Budget but did not commence until 2005-06.

Expenditure initiatives, including operating and capital payments, are either one-off or ongoing in nature. The Capital Works Program shows the total cost of each project, not the cash allocation in the budget year. Initiatives in this chapter are presented according to the Government’s priority areas of:

• Economy and Business;

• Jobs and Training;

• Schools;

• Community Safety;

• Health and Community Services;

• Lifestyle and Environment; and

• Regional Initiatives.

The table below provides a summary of all initiatives.

2004-05 2005-06 2006-07 2007-08 2008-09

Summary by priority area Estimate Budget

$M $M $M $M $MEconomy and Business 2.8 7.2 13.1 19.2 20.2Jobs and Training 3.6 3.6 3.6 3.6

Schools 9.8 16.0 17.0 16.0 13.5

Community Safety 1.9 4.9 1.8 2.1 1.8Health and Community Services 2.6 9.2 9.7 10.2 10.8

Lifestyle and Environment 2.6 7.5 4.9 4.7 4.3Regional Initiatives 3.7 1.5 1.5 1.5 1.5

Total Initiatives 23.4 49.9 51.7 57.3 55.8

Forward Estimates

For a list of initiatives and capital projects, including capital works projects continuing from 2004-05, by agency, see Budget Paper No. 3 and Budget Paper No 4.

A more detailed discussion of revenue initiatives including revenue policy changes as well as changes in procedures, is also presented in this chapter.

25

Budget Initiatives

Economy and Business 2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Increased First Home Owner stamp duty concession

2.7 2.8 2.8 3.6

2. Abolish electronic debit transaction duty

2.4 2.9 3.2 3.4

3. Higher payroll tax exemption threshold 3.2 3.3 3.3

4. Abolish stamp duty on leases, franchises and unquoted marketable securities

2.1 2.4 2.4

5. Abolish stamp duty on hiring arrangements

5.3 5.8

6. Building and planning reform 0.7 0.7 0.7 0.7

7. Indigenous business development program

0.3 0.3 0.3

8. Business and Skilled Migration Strategy 0.1 0.3 0.3 0.3 0.3

9. Palmerston Information Centre 0.2 0.2 0.2 0.2

10. Northern Territory racing industry – capital support

1.1 0.4 0.4 0.4 0.4

11. Increased capacity – Consumer and Business Affairs

0.4 0.3 0.3 0.3 0.3

12. NT Build – construction industry long service leave

0.9

13. Investing in Film 0.1 0.1 0.2

14. Funding towards 'The Alice' television series

0.3

15. Fuel terminal relocation incentive 3.0


Forward Estimates

1. Increase in First Home Owner stamp duty concession threshold from $125 000 to $200 000 at a cost of $2.7 million in 2005-06.

2. Electronic debit transaction duty will be abolished from 1 July 2005, valued at $2.4 million in 2005-06 and up to $3.4 million by 2008-09.

3. The 2004-05 Budget included an increase in the payroll tax exemption threshold from $800 000 to $1 million from 1 July 2005. This Budget now includes a further increase in the threshold to $1.25 million from 1 July 2006, valued at $3.2 million.

4. A further $2.1 million in revenue will be forgone from 2006-07 as a result of the removal of stamp duty on the grant and renewal of leases and franchises and conveyance on unquoted marketable securities from 1 July 2006.

5. Stamp duty on hiring arrangements will be abolished from 1 July 2007, valued at $5.3 million in 2007-08 and $5.8 million in 2008-09.

6. Additional funding of $0.65 million to implement changes to the Planning Act and Building Act to include improved advertising of planning applications, enhanced appeal processes and related construction industry reform initiatives.

7. Additional funding of $0.9 million over three years to expand business support programs with specific initiatives aimed at encouraging Indigenous business development and growth.

8. Additional funding of $0.25 million from 2005-06 to increase the availability of skilled workers for industry through the Business and Skilled Migration Strategy.

26

Budget Initiatives

9. Additional funding of $0.15 million has been provided to develop a one-stop information centre in Palmerston for information, business and community justice services.

10. The funding agreement with the racing industry was recently finalised, resulting in additional payments of $1.05 million in 2004-05 and $0.35 million from 2005-06 for capital purposes. Escalation arrangements for recurrent funding have also been revised.

11. Funding of $0.4 million in 2004-05 and $0.3 million from 2005-06 will be allocated to provide operational and personnel capacity to manage additional legislation, disputes, compliance, new initiatives and investigation work with Consumer and Business Affairs.

12. Establishment costs of $0.9 million have been provided for NT Build Statutory Corporation. The scheme recognises the circumstances of the construction industry, allows portability between other states and territories, and is funded by a levy on construction work. The Statutory Corporation will commence on 1 July 2005, with ongoing costs and entitlement payments met by the levy.

13. Funding for the Northern Territory Film Office grants program will be increased by $50 000 in 2005-06, $0.1 million in 2006-07 and $0.15 million in 2007-08 to enhance the film, television and digital media industries in the Territory.

14. The Territory will contribute $0.33 million towards ‘The Alice’ television series.

15. Payment to the fuel companies for moving the fuel tanks from Frances Bay to East Arm, estimated to be around $3 million in 2005-06.

Following are the new capital works projects for 2005-06 for Economy and Business.

2005-06 Major New Capital Works Projects $M

Mereenie Loop – stage 2 8.0

Darwin City Waterfront Redevelopment – stage 3 7.3

Litchfield Loop – stage 2 3.0

Point Stuart Road upgrade 1.6

Darwin Business Park – stage 2 sewerage headworks 1.5

Maryvale Road upgrade 0.8

Stokes Hill Wharf – Customs jetty 0.4

27

Budget Initiatives

28

Jobs and Training

1. Introduction of Jobs Plan 2 – Building the Northern Territory Workforce to improve on Jobs Plan I by enhancing training and skills development, supporting apprentices and trainees and providing incentives for both employers and employees. Government has invested a total of $4.74 million in Jobs Plan I, and a further $2 million will be provided ongoing from 2005-06 under Jobs Plan 2. A total of $3.58 million has been allocated in 2005-06 to implement both Jobs Plan schemes. Specific components of Jobs Plan 2 are:

- increase of $0.29 million for additional employer incentives in addition to those funded under Jobs Plan I;

- $0.85 million for a Work Wear Work Gear Bonus Scheme to provide a grant of up to $500 to new trainees and apprentices;

- $0.2 million for a Work Ready NTprogram to assist secondary students with the transition from the classroom to the workforce;

- 40 vocational eduction and training (VET) scholarships at $4000 each to assist students studying Certificate III up to Diploma level courses, a total funding increase of $0.16 million; and

- $0.5 million for Build Skills NT, an upskilling and reskilling program.

2. Further address skill shortages in the labour force in the Northern Territory via additional recurrent funding of $1.5 million for the Charles Darwin University with a focus on quality traditional trade training.

3. Introduction of Building a Stronger NTPS: A Blueprint for the Future, an evidence-based strategic workforce planning and management framework for the public sector.

The following table presents the significant new capital works projects for 2005-06 for Jobs and Training.


Desert People's Centre – learning themes stage A 5.9

Desert People's Centre – administration building 5.9

Desert Knowledge Precinct – Business and Innovation Centre 4.0

Desert Knowledge Precinct – headworks stage 2 2.7

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Jobs Plan 2 – Building the Northern Territory workforce – traditional trades skill shortages 0.3 0.3 0.3 0.3

– Work Wear Work Gear Bonus Scheme 0.8 0.8 0.8 0.8

– Work Ready NT 0.2 0.2 0.2 0.2

– VET scholarships 0.2 0.2 0.2 0.2

– Build Skills NT 0.5 0.5 0.5 0.5

2. Traditional trades – Charles Darwin University

1.5 1.5 1.5 1.5

3. Building a Stronger NTPS – a Blueprint for the Future

0.1 0.1 0.1 0.1

Total Initiatives 3.6 3.6 3.6 3.6

Forward Estimates

Budget Initiatives

29

Schools

1. Funding of $3.39 million in 2004-05 and $9.42 million in 2005-06 has been allocated to implement a wide range of activities for the Building Better Schools initiatives including:

- provision of qualified counsellors and careers advisers to all secondary schools;

- improved VET programs in secondary schools;

- support to Territory teachers and educators, by providing opportunities to develop and share good teaching and learning practices, and developing a new teaching and learning framework;

- improving Indigenous students’ educational outcomes, and social and emotional wellbeing, and providing 20 specialist teachers to support face-to-face teaching in remote schools;

- establishing an interactive distance learning studio at Katherine School of the Air; and

- building stronger school communities through enhancing data collection and analysis for school improvement, and conducting a Chief Executive’s Student Forum.

2. Range of short-term initiatives, including additional information technology costs.

3. Funding of $1.2 million in 2004-05, increasing to $1.4 million in 2005-06 for non-government schools comprising:

- recurrent funding of $1.17 million for educational costs associated with curriculum, special student services and information technology; and

- $0.17 million in capital assistance in 2005-06 for infrastructure projects focusing on classroom facilities.

4. Additional funding as a result of the review of administrative officer workloads in schools. This funding provided for a reclassification of administrative school staff at a cost of $1.2 million.

5. Continuation of the program of furniture upgrades for remote teacher housing at a cost of $0.5 million in 2005-06.

6. Additional funding of $0.5 million in 2005-06 for equipment needs in urban, rural and remote schools and community education centres.

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Building Better Schools initiatives 3.4 9.4 12.1 11.8 9.9

2. Increased capacity for schools 4.0 3.0 2.0 1.0

3. Additional funding to non-government schools

1.2 1.4 1.4 1.4 1.4

4. Review of administrative officer workloads

1.2 1.2 1.5 1.8 2.2

5. Furniture for remote teachers 0.5

6. Equipment for schools 0.5


Forward Estimates

Budget Initiatives

30

The following table presents the significant new capital projects for 2005-06 for Schools.


Parap Primary School – stage 2b 2.9

Wadeye – new science block 2.2

Mamaruni School (Minjilang, Croker Island) 2.0

Darwin High School – upgrade Block A 2.0

Mapurru Homeland Centre 1.0

Donyddji Homeland Centre 0.8

Gunbalanya Community Education Centre 0.8

Ross Park Primary School – airconditioning upgrade 0.6

Community Safety

1. Additional funding has been provided to Police, Fire and Emergency Services due to the accelerated recruitment of police officers, subsequent to the O’Sullivan review.

2. Funding of $0.2 million in 2005-06 for mobile police stations in Darwin and Alice Springs. The mobile police stations will provide police with the flexibility to respond immediately to crime hotspots and community needs, allowing for more direct and dedicated service delivery.

3. Funding of $0.44 million from 2005-06 to provide Aboriginal Community Police Officers working in remote communities with police-owned vehicles to carry out their duties. This reflects Government’s support for remote communities and for improving police services.

4. Funding of $0.21 million to establish a Northern Territory Emergency Services presence at Kings Canyon. This initiative will provide professional first response to accidents and coordinated training to local volunteers to enable them to respond to emergency situations.

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Additional O'Sullivan implementation costs

1.4 2.9

2. Mobile police stations – Darwin and Alice Springs

0.2

3. Vehicles for Aboriginal Community Police Officers

0.4 0.4 0.7 0.5

4. Emergency services capability at Kings Canyon

0.2 0.2 0.2 0.2 0.2

5. Expanded emergency service capability at Yulara

0.2 0.2 0.2 0.2 0.2

6. Domestic Violence Legal and Advocacy Services

0.1 0.1 0.1 0.1 0.1

7. Community Justice Centre 0.3 0.3 0.3 0.3

8. Sexual Assault Prevention Plan 0.2 0.2 0.2 0.2

9. Community Safety Plans implementation grants

0.4 0.4 0.4 0.4


Forward Estimates

Budget Initiatives

31

5. An expanded fire and emergency services at Yulara with the Voyages Group contribution totalling a commitment of $0.23 million. An additional firefighter will be stationed at Yulara to improve emergency response and fire protection in Yulara and the surrounding area.

6. Additional funding of $0.1 million from 2004-05 has been allocated to increase the capability of the Domestic Violence Legal and Advocacy Services for Darwin and Alice Springs.

7. Funding of $0.3 million will be provided from 2005-06 for the Community Justice Centre to provide fast and free dispute resolution services.

8. Additional funding of $0.2 million will be provided from 2005-06 to the Office of the Director of Public Prosecutions to prosecute sexual assault matters.

9. Funding of $0.35 million has been allocated from 2005-06 for Community Safety Plans implementation grants to support community-driven crime prevention activities.

The following table presents the significant new capital projects for 2005-06 for Community Safety.


Darwin Correctional Centre – program and living unit facilities 1.0

Marrara Fire Station 3.6

Health and Community Services

1. Additional recurrent funding of $1.94 million from 2005-06 for Alice Springs Hospital. This will provide additional staffing for the Intensive Care Unit; emergency services support to recruit a registrar, a part-time second intensivist nurse and nine nursing positions; and to recruit six junior medical officers to provide relief support for existing staff, improve rosters to standard working hours and meet minimum expectations of junior medical staff.

2. Funding of $2.5 million will be provided in 2005-06 and $2 million for 2006-07 to implement a service network for people with volatile substance misuse problems in conjunction with the new Volatile Substance Abuse Prevention Act.

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Additional funding for Alice Springs Hospital

1.9 1.9 1.9 1.9

2. Volatile substance abuse prevention 1.5 2.5 2.0 2.0 2.0

3. Support for Territorians requiring radiation oncology services

0.1 0.5 0.5 0.5 0.5

4. Community midwifery program 0.4 0.4 0.4 0.4

5. Professional development for midwives 0.2 0.2 0.2 0.2 0.2

6. Community-based residential services – mental health

0.6 1.1 1.1 1.1

7. Mental health support services – Darwin Correctional Centre

0.4 0.5 0.5 0.5

8. Nhulunbuy Special Care Centre 0.4 0.6 0.6 0.6 0.6

9. Alcohol Framework 0.4 1.0 0.9 0.9 0.9

10. Additional funding for non-government organisations

1.1 1.6 2.1 2.7


Forward Estimates

Budget Initiatives

32

Rehabilitation and treatment services are being established across the Territory to provide increased options and opportunities for people with volatile substance abuse problems.

3. Funding of $0.5 million will be provided from 2005-06 to improve the care and support services for Territorians requiring interstate radiotherapy treatment.

4. Additional funding of $0.4 million will be provided from 2005-06 for home birth care services and provision of outreach ante-natal services to remote communities.

5. Funding of $0.2 million will be provided to enable Territory nurses to study locally as midwives. Local training reduces the need to recruit from interstate or overseas, and also provides a greater understanding of Territory health issues and considerations.

6. Funding of $0.6 million will be provided from 2005-06 for community-based residential care services in Darwin and Alice Springs, with 24-hour support for people with mental illness and their carers.

7. Additional $0.35 million for enhanced mental health and disability clinical and behavioural support services to the Darwin Correctional Centre.

8. Additional funding of $0.43 million for the operation and staff training requirements of the Nhulunbuy Special Care Centre and $0.39 million contribution to the fitout of a 12 bed sobering up facility at Nhulunbuy. Additional funding of $0.15 million for a community patrol at Nhulunbuy is also provided.

9. As part of the response to the Alcohol Framework, establishment of the Office of Alcohol Policy with greater emphasis on community involvement in alcohol management activities, streamlining of Licensing Commission processes and a full review of the Liquor Act.

10. Additional funding of $1.1 million from 2005-06 for indexation of payments to non-government organisations.

The following table presents the significant capital works projects for 2005-06 for Health and Community Services.


Darwin and Alice Springs Mental Health Facilities – community–based residential care

1.2

Alice Springs Hospital – Ward 4 upgrade 1.0

Flynn Drive renal facilities – upgrade 1.0

Royal Darwin Hospital – replace index washer sterilising unit 0.9

Alice Springs Hospital – staff accommodation upgrade 0.7

Renal facilities – stage 3 0.4

Budget Initiatives

33

Lifestyle and Environment

1. Additional three year funding of $0.2 million from 2004-05 to assist the Northern Territory Show Council with the Territory Show Circuit.

2. Additional funding of $0.75 million per annum will be provided from 2005-06 to the Museum and Art Gallery of the Northern Territory for ongoing development.

3. Continued funding of $0.5 million will be provided in 2005-06 for administration support to stage sporting events in the Territory.

4. Funding of $0.3 million will be provided from 2005-06 as part of the minor new works program, for a Public Art Strategy, which aims to enhance the quality of the built environment and public facilities, and support the arts community through economic and professional opportunities.

5. Funding of $0.3 million will be provided from 2005-06 to assist elite Territory athletes to compete at national and international levels.

6. Additional funding for pensioner concession, for essential services of $0.9 million ongoing from 2004-05.

7. Funding for additional bus services for public housing seniors’ villages in Darwin and Palmerston.

8. Additional funding to stage major events including V8 Supercars.

9. Funding of $1.2 million over three years to establish and support the Statehood Steering Committee and its activities within the agreed terms of reference and renewed commitment to statehood and constitutional development.

10. Increased urban enhancement for 2005-06 of $1 million, including continuation of the upgrade of metropolitan shopping centres program.

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M

1. Additional funding – Northern Territory Show Council

0.2 0.2 0.2

2. Increased capacity for the Museums and Art Gallery of the Northern Territory

0.4 0.8 0.8 0.8 0.8

3. Additional funding to support sporting events

0.5 0.5

4. Northern Territory Public Arts Strategy 0.3 0.3 0.3 0.3

5. Increased athlete participation at Northern Territory Institute of Sport

0.3 0.3 0.3 0.3

6. Growth in pensioner concessions for essential services

0.9 0.9 0.9 0.9 0.9

7. Increased bus services for seniors 0.1 0.1 0.1 0.1

8. Increased funding for major events 0.2 0.3 0.3 0.3 0.3

9. Statehood Steering Committee 0.4 0.4 0.4

10. Increased urban enhancement funding 1.0

11. Implementation of Darwin Harbour Regional Plan of Management

0.3

12. Australian Football League matches 0.1 0.1

13. National parks improvements 1.2 1.2 1.2 1.2

14. Mt Todd rehabilitation 0.4

15. Cane toad minimisation project and awareness campaign

0.3 0.3

16. Increased funding for Territory festivals 0.4 0.4 0.4 0.4


Forward Estimates

Budget Initiatives

34

11. $0.3 million has been provided to implement initiatives under the Darwin Harbour Regional Plan of Management.

12. Additional funding of $0.2 million over two years to stage Australian Football League matches.

13. Increased funding for recurrent park management operations and management of the new Channel Point Recreation Reserve ($1.2 million).

14. Additional funding of $0.37 million for the effective management and rehabilitation of the Mt Todd mine site.

15. Awareness campaign including public engagement for cane toad management and response.

16. Additional funding of $0.4 million from 2005-06 will be provided to expand the grants program for festivals, particularly in rural and remote areas of the Territory.

The following table presents the significant new capital projects for 2005-06 for Lifestyle and Environment.


Darwin Soccer Stadium 5.8

Hidden Valley Raceway upgrade 1.9

Improved recreational fishing infrastructure 0.5

Litchfield National Park development– stage 1 2.0

West MacDonnell National Park development 1.0

Mary River Wetlands – desalination 0.5

Channel Point Reserve – ranger accommodation and secure storage facilities 0.4

2005–06 Major Capital Grants

Palmerston Recreation Centre Alice Springs drag strip

5.0 0.8

Regional Initiatives 1. The resource commitment for providing power, water, and sewerage services,

aerodromes and barge landings in remote Indigenous communities is adjusted annually for increases in the cost of providing these services. In 2004-05, $3.5 million is for increased fuel costs associated with electricity operation. Funding increases from 2005-06 reflect increased indexation for Indigenous Essential Services.

2. Employment of a Government regional coordinator for the West Arnhem region based in Jabiru and a coordinator at Nhulunbuy to assist with development opportunities and obligations in regard to the Alcan expansion.

2004-05 2005-06 2006-07 2007-08 2008-09

Estimate Budget

$M $M $M $M $M1. Additional funding for Indigenous

Essential Services3.5 1.2 1.5 1.5 1.5

2. Regional Coordinator for Nhulunbuy and Jabiru

0.2 0.3


Forward Estimates

Budget Initiatives

35

The following table presents the significant new capital works projects for 2005-06 for regional areas.


Victoria Highway – stage 2 flood plain upgrade and new bridges 15.0

Upgrade Government employee housing 3.0

Construct Government employee housing in remote localities 3.0

Wadeye – construct 6 Government employee housing dwellings for teachers 2.4

Replace Government employee housing in remote localities 2.0

Ngukurr/Numbulwar – road upgrades and causeway at Rose River 0.5

Central Arnhem Road – selected road and river crossing upgrades from Beswick to Gove

0.5

Sandover Highway – upgrades sections 0.5

Alpurrurulam aerodrome 1.3

Pigeon Hole aerodrome 0.6

Revenue Initiatives The key revenue measures in the 2005-06 Budget were summarised in the Economy and Business section. More details are provided below.

Payroll Tax Reduction In accordance with the Government’s commitment to reduce the payroll tax burden on businesses, the payroll tax general exemption threshold increases to $1 million from 1 July 2005. The threshold will be increased again to $1.25 million from 1 July 2006. These changes are expected to reduce payroll tax collections by $3.2 million per year from 1 July 2005 and by a further $3.2 million per year from 1 July 2006. Over 1300 businesses will benefit from these reductions.

Altogether, 180 locally-based Territory businesses and 35 interstate-based businesses will no longer be required to pay payroll tax from 1 July 2006. As a result of increases to the payroll tax threshold in 2004-05 and 2005-06, locally-based Territory businesses still paying payroll tax after 1 July 2005 will save on average $20 500 each year. Locally-based Territory businesses that continue to pay payroll tax after 1 July 2006 will save on average an additional $11 400 in payroll tax a year.

Increase in the First Home Owner Stamp Duty Concession First home buyers purchasing a home from 3 May 2005 will benefit from the first home owner stamp duty concession increasing from the stamp duty payable on the first $125 000 of a home’s value to the first $200 000. This will nearly double the value of the concession from a maximum of $3640 to a maximum of $6800, providing stamp duty savings of $2.7 million to first home buyers in 2005-06.

The value of the concession was last increased in August 2002, from the stamp duty payable on the first $80 000 of a home’s value (a maximum concession of $2096) to the first $125 000 of a home’s value (a maximum concession of $3640).

Budget Initiatives

36

Tax Reform As part of national tax reform, the Australian Government, states and territories signed the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the Intergovernmental Agreement). Part of the Intergovernmental Agreement secured the abolition of some state and territory taxes and a review of the need to retain a list of other ‘business’ taxes.

In accordance with the Intergovernmental Agreement, the Territory abolished tourism marketing duty from 1 July 2000, and both stamp duty on quoted marketable securities and financial institutions duty from 1 July 2001. These changes have reduced the Territory’s tax collections by over $20 million per year.

As part of its commitment to national tax reform, the Government has agreed to abolish the taxes that were subject to review under the Intergovernmental Agreement. Further details of these taxes and Government’s schedule for abolishing them are provided below.

Debits tax and electronic debit transaction duty will be abolished from 1 July 2005, at a cost of $8.6 million in 2005-06.

Stamp duty payable on the grant and renewal of leases and franchises and stamp duty on unquoted marketable securities (that is, companies and trusts where the securities are not quoted on a recognised stock exchange) will be abolished from 1 July 2006. This is expected to cost $2 million in 2006-07.

From 1 July 2007, stamp duty on hiring arrangements will be abolished. This is a stamp duty levied on rent paid in respect of the hire of goods, including consumer and producer goods and instalment purchase arrangements. This is expected to cost $5.3 million in 2007-08.

Stamp duty levied on the value of non-residential conveyances will be abolished from 1 July 2009. This includes conveyances of goodwill, statutory licences and rights to use business names and patents but does not include conveyances of real property. This is expected to reduce stamp duty collections by $5.5 million in 2009-10.

Extending the Family Farms Stamp Duty Exemption The Stamp Duty Act provides an exemption for the conveyance of pastoral land between family members. This exemption provides an incentive to encourage younger generations to continue to work the family farm and to increase the use of more modern and productive farming techniques.

From 3 May 2005, the ‘family farms’ stamp duty exemption is extended to allow the conveyance of all primary production land, not just pastoral land. The exemption also recognises the commercial reality that primary production land may be held in a company or trust. Accordingly, the exemption is also extended to apply to conveyances between family members, companies in which all the shares are owned by the family members, and trusts where the trust beneficiaries only comprise family members.

Budget Initiatives

37

Equity, efficiency and administrative enhancements The Government has approved a package of changes that enhance the simplicity, efficiency and equity of the Territory’s taxation regime. These measures:

• allow the Commissioner of Taxes to generally extend the time for the lodgement and payment of duty on conditional contracts (this measure commences on 3 May 2005);

• provide for refunds of stamp duty on contracts where duty was assessed on ‘contingent’ consideration, where that consideration has not been and will not be paid;

• extend the stamp duty exemption for motor vehicles registered in the name of a totally and permanently incapacitated war veteran to include extreme disabled adjustment war veterans; and

• clarify that the payroll tax grouping provisions apply to companies carrying on a business as the trustee of a trust.

Except where noted otherwise, the measures commence on 1 July 2005.

Chapter 5

Australian Government Grants Overview

Australian Government grants are an important source of revenue for all states. The grants are necessary as, under Australia’s federal system, the states have significant service delivery responsibilities but limited capacity to raise own-source revenue, while the Australian Government’s revenue raising capacity exceeds its limited responsibility for providing services. The mismatch between the revenue powers and service delivery responsibilities of the Australian and state governments is described as vertical fiscal imbalance , and has increased following goods and services tax-related tax reform and the abolition of a range of state taxes.

There are two types of Australian Government grants to states:

• general purpose grants, which include GST revenue payments and national competition payments. These are untied payments that can be used by the states for any purpose; and

• specific purpose payments (SPPs), which are generally earmarked for specific purposes.

The table below highlights the importance of Australian Government grants to the states and the Northern Territory in particular.

Table 5.1: Sources of Revenue for the Northern Territory and All States in 2005-06

Northern Territory % of Total Revenue

All States % of Total Revenue

General Purpose Payments1 65.5 28.5

Specific Purpose Payments2 14.2 19.6

Own-Source Revenue 20.3 51.9

Total 100.0 100.0

1 GST and National Competition Payments.

2 SPPs ‘to’ and ‘through’ the States.

Sources: Statement of Estimated Payments to the states and territories, 23 March 2005; state and territory 2004-05 mid-year reports.

Note: To allow comparison with other states, this table is based on estimates provided to the March 2005 Treasurers’ Conference.

The Northern Territory is much more reliant on Australian Government grants than other states, with around 80 per cent of its revenue sourced from the Australian Government. In other states, Australian Government grants account for around 48 per cent of revenues. This greater reliance on Australian Government grants reflects the higher cost and demand for government services and the low revenue-raising capacity of the Territory relative to other states.

Intergovernmental Agreement The June 1999 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the Intergovernmental Agreement) defines the principles and institutional arrangements by which the Australian Government collects GST revenue on behalf of the states. Since its implementation in July 2000, the Intergovernmental Agreement has been the centrepiece of financial relations between the two levels of government.

The Australian Government has collected revenue on behalf of the states since the 1940s, when the states’ income taxation powers were transferred to the Australian Government. Prior to the Intergovernmental Agreement, the amount of federal taxation revenue passed on to the states was at the discretion of the Australian

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Australian Government Grants

Government. Competing budget pressures and policy priorities had resulted in a decreasing share of Australian Government revenue, particularly untied revenue, being passed on to the states over time.

By the 1990s, financial arrangements between the two levels of government were both inefficient and becoming unsustainable. The cost of providing state services, particularly health and law and order, was growing faster than revenue from the Australian Government. At the same time, the relative importance of state own-source revenue was increasing as the states sought to fund the increasing demand for, and costs of, government services.

The primary objectives of the tax reforms introduced under the Intergovernmental Agreement were:

• to guarantee states access to a source of untied revenue whose growth would, over time, better align with growth in the cost of state services;

• to allow for the staged abolition of a specified list of state taxes; and

• to simplify Australian – State financial relations.

Under the Intergovernmental Agreement, all GST revenue is provided to the states and distributed in accordance with the principle of horizontal fiscal equalisation.

The Intergovernmental Agreement requires the states to:

• forgo financial assistance grants, which provided the bulk of untied grants to the states before the introduction of the GST;

• abolish a range of their own taxes, including financial institutions duty, stamp duty on shares and marketable securities and bed taxes;

• review the need to maintain debits tax (debits tax will be abolished in the Territory from 1 July 2005); and

• review the need to maintain a number of other taxes by 2005.

A key feature of the Intergovernmental Agreement is a guarantee that no state will be financially disadvantaged by the tax reforms introduced in 2000. To satisfy that commitment, the Australian Government agreed to provide budget balancing assistance (BBA) to offset the revenue shortfall for as long as any state is worse off than under previous funding arrangements. In principle, BBA should be available permanently, however the Australian Government has indicated its intention, through regulation, to end BBA arrangements after 2005-06.

Although the Australian Government forecasts that no state will require BBA in 2005-06, if the economy slows more than expected, it is likely that New South Wales will continue to require this assistance. The Territory has not required BBA since 2002-03.

In aggregate, the states are expected to be $1.9 billion better off in 2004-05 than they would have been without tax reform, however the impact of tax reform on states has varied. Individual states have now had between one and three years during which GST revenue has been higher than under previous funding arrangements. This result is largely due to robust economic conditions and a low inflationary environment that have provided strong growth in all government revenues, including GST. However, the growth in GST revenue has not been sufficient to correct a continuing decline in the states’ share of national tax revenue.

Chart 5.1 illustrates the continuation of a long-term trend decline in the states’ share of national revenue, including state own-source revenue, after the introduction of the GST in 2000. Although the GST has grown strongly since 2000, the relative

40


strength and size of the Australian Government tax base ensures that the proportion of national revenue assigned to state purposes continues to reduce. In 1983-84, nearly half of national revenue was dedicated to state services. On current forward estimates, this proportion will have fallen to about 36 per cent by 2007-08.

Chart 5.1: State and Territory Share of National Taxation Revenue

Although the GST revenue passed to the states has grown more strongly than expected since 2000, Australian Government revenues have also increased significantly. Despite a temporary slowing in income and company tax collections in 2001-02, Australian Government own-purpose revenue has grown by over $30 billion since the GST was introduced. As a result, the Australian Government’s projected cash surplus of $6.2 billion in 2004-05 alone is greater than the accumulated benefit of the GST to all states and territories since 2000, and is over 17 per cent of total GST revenue passed on to the states in 2004-05.

Chart 5.2: Growth in Australian Government Revenue

The Intergovernmental Agreement provided for an annual meeting of all Australian Treasurers, known as the Treasurers’ Conference, to oversee its operation. The fifth annual Treasurers’ Conference was convened on 23 March 2005, at which the agenda was dominated by the states’ undertaking in the Intergovernmental Agreement to “review the need” for a range of taxes by 2005.

At the meeting, the Australian Government effectively re-interpreted the Intergovernmental Agreement by arguing that the states had committed to abolish the taxes listed for review if growth in the GST made it affordable to do so. The Intergovernmental Agreement, however, contains no mention of affordability, or of a commitment to abolish the taxes listed for review.

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The states’ understanding is that the possible need to retain some taxes nominated for review was envisaged when the Intergovernmental Agreement was developed. This view is supported by the fact that taxes for review were explicitly removed from the list of taxes for abolition as a consequence of the 1999 amendment by the Australian Democrats to the overall tax reform package.

The states, therefore, have strongly contested the Australian Government’s position and have also argued that any notion of affordability must capture expenditure pressures as well as revenue gains. Furthermore, the Australian Government's reinterpretation of the Intergovernmental Agreement is inconsistent with its original advice to the states – that the benefits of tax reform were intended to fund improvements in state services.

The Australian Government’s offer to the states in March 2005 required the states to commence the abolition of taxes listed for review from 1 July 2006, in return for which the Australian Government would extend BBA for two years to 2007-08. Under the Australian Government’s projections, the aggregate financial benefit of tax reform to the states would be substantially eroded, and New South Wales would not realise any financial improvement until 2008-09, close to a decade after the Intergovernmental Agreement came into effect.

The Australian Treasurer indicated that, in his view, any blanket refusal would represent a breach of the Intergovernmental Agreement. As a result there are real concerns that the Australian Government is prepared to unilaterally reinterpret or walk away from the Intergovernmental Agreement. This could result in new financial arrangements with the Australian Government that would disadvantage the states, allowing for greater restrictions on funding provided by the Australian Government, and possibly involving less overall grant revenue.

The Northern Territory Government has consistently indicated its support for future tax reform, while also acknowledging that the intent of the Intergovernmental Agreement was to give states access to a growth tax that would enable them to respond more effectively to increasing demand for services.

In April 2005, the Territory joined with most states in putting forward an alternative tax reform proposal to the Australian Treasurer, which involves the abolition of a range of stamp duties over five years commencing in 2006-07. For further details, see Chapters 4 and 6 of this Budget Paper.

GST Revenue The Territory expects to receive $1739.1 million in GST revenue in 2004-05, a 3.5 per cent increase from the $1680.9 million received in 2003-04. For 2005-06, a stronger increase of 5.2 per cent to $1829.3 million is expected, reflecting stable relativities and improved population growth. The Territory’s estimates of GST growth for 2004-05 and 2005-06 are marginally lower than those of the Australian Government due to more conservative population growth projections.

Commonwealth Grants Commission The role of the Commonwealth Grants Commission (the Commission) is to advise the Australian Government on relativities for use in the distribution of GST revenue among the states. The Intergovernmental Agreement requires these recommendations to be based on the principle of horizontal fiscal equalisation, which is defined as:

State governments should receive funding from the pool of goods and services tax revenue and health care grants such that, if each made the same effort to raise

42


revenue from its own sources and operated at the same level of efficiency, each would have the capacity to provide services at the same standard. (Commission 2005 Update Report)

The Commission’s recommendations are expressed in per capita relativities for each state. The relativities take into account differences in:

• states’ expenditure needs, including both the cost of, and demand for, government services; and

• states’ capacity to raise own-source revenues.

Every five years, the Commission undertakes a major review of its method used to determine per capita relativities. This process is necessary to ensure that relativities continue to reflect the contemporary public administration, service provision and revenue raising environment of state governments. The last review was completed in February 2004. The method implemented in the 2004 Review will be used as the basis for determining GST distribution among states to 2009-10. Relativities will be updated using the latest available financial, economic and demographic data.

2005 Update The Report on State Revenue Sharing Relativities – 2005 Update details the results of the Commission’s latest analysis of data. In its 2005 Update, the Commission recommended an increase in relativities for Victoria, New South Wales, the Australian Capital Territory and the Northern Territory. The remaining jurisdictions experienced a decrease in relativities. The 2005 Update relativities will be used to distribute GST revenue among the states in 2005-06.

The table below shows the change in per capita relativities and each state’s share of GST revenue using the 2004-05 GST pool between the 2004 Review and 2005 Update.

Table 5.2: Impact of the 2005 Update

NSW Vic Qld WA SA Tas ACT NT Aust

2004 Review

Relativity 0.86750 0.86534 1.05504 1.03054 1.20407 1.55939 1.12930 4.26538 1.00000

Grant Share (%) 29.10 21.40 20.28 10.14 9.22 3.74 1.83 4.25 100.00

2005 Update

Relativity 0.86846 0.87552 1.04389 1.02500 1.20325 1.55299 1.14300 4.26682 1.00000

Grant Share (%) 29.14 21.65 20.06 10.08 9.21 3.73 1.85 4.25 100.00

Impact ($M) 12.0 106.2 -93.7 -24.0 -3.2 -6.8 9.2 0.3 0.00

Impact ($ per capita) 1.79 21.48 -24.39 -12.20 -2.09 -14.16 28.44 1.51 0.00

Source: Commonwealth Grants Commission Report on State Revenue Sharing Relativities - 2005 Update.

The outcome for the Territory was a marginal increase in its relativity from 4.26538 to 4.26682, which translates to a $0.3 million increase in the Territory’s share of GST revenue based on the 2004-05 GST pool. In per capita terms, the Australian Capital Territory ($28.44) and Victoria ($21.48) made significant gains, while Queensland (-$24.39) experienced the biggest loss.

The Commission’s recommended relativities are based on assessments of revenue and expenditure needs for each state and territory. The Commission uses the term ‘need’ to describe the financial effect on each jurisdiction of:

• unavoidable influences on the use or cost of providing services (expenditure needs);

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• unavoidable influences on revenue-raising capacities (revenue needs); and

• its per capita level of SPPs in relation to the national average (SPP needs).

In the last year for which the Commission has completed its assessments (2003-04), the Territory was assessed as requiring to spend $11 844 per capita to provide a standard level of government services, compared with a national average of $4876 per capita. The difference between these amounts, $6968 per capita, is the sum of the Territory’s assessed expenditure needs.

Needs may be positive or negative. It is a necessary consequence of the Territory’s assessed positive expenditure needs that at least one other jurisdiction will be assessed as having negative expenditure needs.

Expenditure needs are assessed by examining factors that influence the costs of, and demand for, services. The high cost of delivering government services in the Territory is mainly due to its small and widely dispersed population, the unique composition of its population, its harsh physical environment and its relative isolation from Australia’s main population centres.

Revenue needs result from factors that influence each state’s capacity to generate revenue from its own sources. These factors include differences between states in developed natural resource endowments and the divergent structure of state economies. The Territory is assessed as having low revenue-raising capacity relative to other states (about $150 per capita less than the national average) and is therefore assessed as having positive revenue needs.

The third broad component of the Commission’s assessment is SPPs. The Territory has negative SPP needs as it receives greater than its per capita share of SPP funding, largely due to programs for Indigenous services.

When all expenditure, revenue and SPP needs are combined to calculate shares of the GST pool, the Territory’s share of GST revenue is about 4.3 per cent compared to a per capita share of about 1 per cent. New South Wales and Victoria are the only jurisdictions that receive less than an equal per capita share of GST revenue, due to their comparative advantages in raising own-source revenue, and lower than average costs of providing services.

Territory Special Needs In its Report on State Revenue Sharing Relativities – 2004 Review, the Commission noted that it may not have fully recognised the capital-related needs of the Territory as assessed through the debt charges and depreciation assessments. The differences between the Territory’s actual and assessed expenditure in the Commission’s capital assessments total more than $170 million per annum. The Territory believes that these differences arise from needs not captured in the Commission’s assessments, and they therefore have a significant impact on the Territory’s ability to provide a standard level of government services. As the Territory’s capital needs are unlike those of other jurisdictions, it was possible that the Commission’s terms of reference limited its scope to assess these needs.

Following concerns raised by the Northern Territory Treasurer, the Australian Government included an additional reference in the 2005 Update terms of reference, instructing the Commission to review the Territory’s debt charges and depreciation assessments.

The Territory submitted detailed information to the Commission during the 2005 Update, focusing on the treatment of capital grants and the impact of timing on borrowing needs. Nonetheless, the Commission did not feel able to properly

44


address the Territory’s concerns in the context of an annual update, and elected not to change the methods applied in the debt charges and depreciation assessments.

Despite the outcome of the review, the Commission acknowledged in its 2005 Update that the difference between actual and assessed expenditure in relation to capital assessments remains large. The Northern Territory will continue to assist the Commission to resolve these issues as part of the next methodology review.

Work Program on Simplicity The Australian system of equalisation is among the most comprehensive of all federations as it equalises both the expenditure needs and revenue-raising capacities of state governments. However, some states have criticised the current approach to equalisation for being overly complex, data intensive and lacking transparency.

At the 2004 Treasurers’ Conference a majority of states, with the support of the Australian Government, agreed to a work program to consider simplification of the Commission’s methods of distributing GST revenue among states. It was agreed that the work program would not examine the underlying principles of horizontal fiscal equalisation.

The simplification review was led by a steering committee chaired by the Secretary of the Australian Government Treasury, and including the Victorian and Tasmanian Under Treasurers and the Chairman of the Commission. A secretariat comprising officers from the Australian Government Treasury and the Commission was established to support the steering committee.

The steering committee also engaged the Australian Bureau of Statistics, Professor Jonathan Pincus and Dr Arthur McHugh (former Auditor-General of Tasmania) to review aspects of the Commission’s methodology.

The states’ main contributions to the review included developing simplification options, responding to agenda papers for the steering committee and reviewing the steering committee’s final report.

The main outcome of the simplification review was a terms of reference for the Commission’s next methodology review. The key concerns for the Territory were that the terms of reference:

• were not so prescriptive that they would constrain the Commission from achieving optimal equalisation outcomes; and

• did not result in the premature introduction of under-developed or incomplete assessments.

The states had widely divergent views about how the Commission’s approach to fiscal equalisation should be controlled by its terms of reference. The terms of reference for the upcoming methodology review, agreed at the 2005 Treasurers’ Conference, are more prescriptive than the Territory and some other states would prefer, however they represent an acceptable compromise between the views of all states.

GST Revenue Projections The Territory is heavily reliant on GST revenue funding from the Australian Government to meet its budgetary and fiscal needs. The Territory is susceptible to even slight variances in GST revenue, which can have a substantial impact on the Territory’s fiscal position.

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Accurate forecasting of the parameters that determine GST revenue can limit the risk to the Territory’s budget. However, the lack of historical data on the GST, and the inherent difficulties in estimating the Territory’s population and the Commission’s relativities over the forward estimates period, make this process difficult.

The Territory’s GST revenue grant is determined principally by:

• the total level of GST collected nationally;

• the Territory’s share of the national population; and

• the Territory’s per capita revenue-sharing relativity as determined by the Commission.

Recent economic data and forecasts suggest a slowdown in the Australian economy over the next few years. As a result, a down-side risk scenario has been developed to illustrate the effect of significant fluctuations to key parameters affecting Territory revenue.

GST Collections In accordance with the Intergovernmental Agreement, the pool of national GST collections is made available to states. Variations in the size of the GST pool have a direct impact on the size of the Territory’s GST revenue grant.

The Australian Government provides states with estimates of GST collections in its annual Budget and in its Mid-Year and Economic Fiscal Outlook (MYEFO). Since the introduction of the tax in 2000, collections have been highly volatile and difficult to predict. Australian Government Treasury remains the most informed source of GST estimates, given its access to the latest key statistical and collections data. On this basis, the Territory has adopted the Australian Government estimate of the total GST pool over the budget and forward estimates period, however it should be cautioned that the underlying economic parameters are estimates that are six months old.

In its MYEFO, the Australian Government revised its 2004-05 GST estimate upward by $654 million to $35.4 billion1, a growth of 6.7 per cent on 2003-04 collections. This was due to better than expected growth of the Australian economy in the first six months of 2004-05, particularly in consumption spending. Current indicators suggest that this level of collections will be met, however the final amount will not be known until the GST Determination in June 2005.

The Australian Treasury has estimated GST growth of 5.2 per cent and 5.3 per cent in 2005-06 and 2006-07 respectively. This is slightly below the long-term assumed growth rate of 5.5 per cent and reflects an expectation of a slowdown in the national economy over the next two years. Economic forecasters have expressed a similar concern for medium-term economic growth and the resulting level of GST collections. The March 2005 Access Economics forecast of 2005-06 growth in consumption expenditure falls to 2.6 per cent, compared with 3.9 per cent in 2004-05. If the Access Economics forecast is realised, Australian Government estimates of GST growth may be optimistic.

The prospect of lower GST growth represents a significant down-side risk to the Territory’s GST revenue grant and its overall budgetary position. A down-side risk scenario has been calculated using a more conservative 4.5 per cent growth in GST

1 This amount includes $219.4 million of compensation for the Australian Government’s GST deferral measure.

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collections for 2005-06 and 2006-07. This is higher than the 3 per cent down-side growth estimate used in the Territory’s 2004-05 Budget, and reflects a balance of contemporary economic opinion, as well as an improved understanding of the performance of the GST. If realised, the down-side risk to GST collections would reduce the Territory’s GST revenue grant by $10.5 million in 2005-06 and by $22.6 million in 2006-07. Beyond 2006-07, GST collections have been assumed to return to the long-term growth rate of 5.5 per cent.

Territory’s Share of the National Population The Territory’s share of national population is a second factor in determining its share of GST revenue. Variations in the Territory’s population growth relative to the other jurisdictions have a direct impact on the Territory’s GST revenue grant. The 2004-05 population estimates will be finalised in June 2005, when the Australian Statistician makes his final determination of the population as at 31 December 2004.

The Territory estimates its 2004-05 population growth at 1.2 per cent, marginally higher than national growth. This is a significant upward revision of 1.0 per cent from the 2004-05 Budget forecast and is primarily due to reduced interstate migration loss from, and increased overseas migration into, the Territory. If realised, the Territory’s share of national population would increase marginally from 0.9932 per cent to 0.9939 per cent. The Australian Government’s estimate of the Territory’s 2004-05 population growth, provided in the March 2005 Statement of Estimated Payments, is slightly higher at 1.4 per cent.

Population growth used in the budget and forward estimates period is 1.1 per cent in 2005-06, 1.0 per cent in 2006-07 and 2007-08 and 0.8 per cent in 2008-09. Although higher than the previous forward estimates these estimates are conservative when compared to long-term averages and the Australian Government’s forecast of between 1.1 and 1.3 per cent growth.

The down-side risk of a lower then expected population growth for the Territory is represented by an assumed 0.2 percentage point reduction in expected growth over the budget and forward estimates period. If realised, it would translate to a decline in Territory GST revenue of about $3.7 million in 2005-06 and $7.6 million in 2006-07.

Commonwealth Grants Commission’s Relativities The third element in determining the Territory’s share of GST revenue is the recommendations of the Commission. The Territory’s relativity has historically been the most volatile relative to the other jurisdictions. A small variation in the Territory’s relativity has a significant impact on its GST revenue grant, posing a significant risk to the Territory’s budgetary position. Neither the Australian Government nor the Commission provide estimates of future relativities.

In its 2005-06 Update, the Commission has assessed a relativity of 4.26682 for the Territory. Future Commission relativities remain a considerable source of uncertainty. The Territory has forecast a moderate decline in the Commission relativity from 2006-07 onwards to account for anticipated revisions to the Commission’s assessment of states’ revenue capacity due to a slowing of the property market in the southern states.

The table and chart below show the budget and forward projections of the Territory’s GST revenue and each of the key parameters. Also shown is the down-side risk scenario. The down-side risk provides a level of risk to the estimates in aggregate, rather than a risk to each of the components of GST revenue individually.

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Table 5.3: Northern Territory GST Revenue Projections

2004-05 2005-06 2006-07 2007-08 2008-09

Budget Estimates ($M) 1 739.1 1 829.3 1 897.7 1 975.1 2 047.5

Total GST ($M) 35 444 37 287 39 247 41 348 43 622

Growth (%) 6.7 5.2 5.3 5.4 5.5

Population 201 198 203 411 205 445 207 500 209 160

Growth (%) 1.2 1.1 1.0 1.0 0.8

Share1 (%) 0.9939 0.9931 0.9915 0.9901 0.9869

Commission Relativities 4.26538 4.26682 4.24682 4.22682 4.20682

Change (%) -2.8 0.0 -0.5 -0.5 -0.5

Down-side Risk ($M) 1 815.2 1 867.6 1 942.2 2 009.3

Total GST ($M) 37 039 38 706 40 835 43 081

Growth (%) 4.5 4.5 5.5 5.5

Population 203 009 204 633 206 270 207 508

Growth (%) 0.9 0.8 0.8 0.6

Share1 (%) 0.9912 0.9876 0.9843 0.9792

Commission Relativities 4.26682 4.24682 4.22682 4.20682

Change (%) 0.0 -0.5 -0.5 -0.5

Variation ($M) -14.1 -30.1 -32.9 -38.2


1 Share of national population.

Chart 5.3: GST Revenue Projections

National Competition Payments Competition payments were introduced in 1997, in accordance with the National Competition Policy (NCP) agreements between the Australian Government and states that were signed in 1995. Under these agreements, the Territory is required to review legislation that restricts competition, ensure competitive neutrality in the operations of government businesses and comply with national reform frameworks relating to the gas, water and road transport sectors. The payments are conditional on compliance with reform commitments, as assessed by the National Competition Council (NCC).

In the negotiations in the lead up to the signing of the agreements, it was generally recognised that the costs of the reform program – in lost revenues and managing the adjustment process – would largely be borne by the states. On the other hand, the Australian Government, through its broader tax base, would capture most of the fiscal benefits. Therefore, competition payments were devised as the mechanism

48


through which the Australian Government would share the dividends of national micro-economic reform with the states.

Competition payments are distributed among the states on an equal per capita basis. The Territory was entitled to $7.6 million in competition payments in 2004-05. Payments to the Territory, however, are estimated at $8.4 million (contingent on final prices and population outcomes). This reflects reinstatement of $1.1 million in 2003-04 competition payments that were temporarily suspended pending satisfactory completion of reforms and the NCC’s recommendation for a permanent reduction of 5 per cent ($0.4 million) in 2004-05 competition payments for the retention of restrictions on takeaway liquor trading.

The Territory’s competition payment entitlement for 2005-06 is about $7.8 million. This amount has been included as the estimate for 2005-06, however the actual amount received will be contingent upon the Australian Treasurer’s consideration of the NCC’s assessment of the Territory's compliance with NCP reform commitments.

The Australian Government announced in 2004 that one of its major election commitments, the National Water Initiative, will be funded by the abolition of competition payments after 2005-06. The fiscal benefits of competition reforms will continue to accrue to the Australian Government, while the states and territories will continue to bear the costs of reform through ongoing regulatory review processes implemented under the NCP agreements.

Specific Purpose Payments Specific Purpose Payments (SPPs) are grants from the Australian Government which are usually tied to some specific program or function against which they must be acquitted. SPPs are a major mechanism by which the vertical fiscal imbalance between the Australian and state levels of government is corrected.

In 2005-06, the Territory will receive about $341 million in SPPs, representing 16 per cent of Australian Government grants and around 14 per cent of total general government revenue.

SPPs are usually governed by formal agreements between the Australian Government and the states which set out conditions such as:

• the programs and functions for which the funds may be used;

• the contribution of state discretionary funds;

• restrictions on how funded programs may be delivered;

• performance and reporting requirements; and

• punitive sanctions for the breach of other conditions in the agreements.

General Issues with SPPs Although SPPs are a means of reducing vertical fiscal imbalance between the states, they also provide the Australian Government with the ability to exert a policy influence over areas of service provision which are historically or constitutionally a state responsibility. SPPs are increasingly regarded by the Australian Government as a means of aligning the delivery of state services with its own policy objectives.

SPPs are an accepted feature of Australian intergovernmental financial relations, and are an important source of revenue for the states. Nonetheless, there are numerous problems with the current implementation of SPP arrangements, including:

• inefficiency – SPPs carry a large administrative burden and involve duplication of functions at the national and state levels of government;

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• distortion of services – the input controls and performance requirements in SPPs often do not promote optimal outcomes, and stifle innovation in service delivery; and

• reduced budget flexibility – input controls in SPP agreements effectively control large amounts of state discretionary revenue, substantially reducing state budget flexibility.

The Way Forward The states have approached the Australian Government repeatedly in recent years to seek agreement on a set of principles and guidelines for the negotiation of future SPP agreements. These may include:

• the simplification of reporting requirements;

• the use of output performance measures in preference to input controls; and

• greater flexibility in the use of SPP funding.

The indications are that the Australian Government is not prepared to consider SPP reform at present. The Australian Government has in fact hardened its position, using SPP agreements to promote its industrial relations agenda, introducing stronger input controls, and applying financial penalties for technical breaches of SPP agreements, such as missing reporting deadlines.

Major Agreements Negotiated in 2004-05

AusLink The current AusLink agreement is due to expire on 30 June 2005.

Funding by the Australian Government under the revised agreement will be provided for selected projects rather than on the basis of the national planning framework. Furthermore, states are now required to take on the financial risk of any projects where there are any cost over-runs.

Concerns have been raised by the states over the fact that the agreement does not take into account the nature of transport spending, which is inherently volatile between years. This impacts on the states’ maintenance of effort requirements under the agreement.

States have also objected to the intrusion of the Australian Government’s industrial relations agenda in the form of a requirement that large capital projects comply with the National Building Code and guidelines.

Australian National Training Agreement (ANTA) The original Australian National Training Agreement (ANTA) was due to expire in December 2003. However due to a breakdown of negotiations between the states and the Australian Government, the original agreement was extended for an additional year.

On 22 October 2004, the Prime Minister announced the abolition of the Australian National Training Authority from 30 June 2005, with responsibility for ANTA being subsumed within the Department of Education, Science and Training.

The agreement was extended for a further six months (expiring on 30 June 2005). This has posed a significant issue for the states over vocational education and training (VET) funding commitments, which are provided on a calendar year basis. In order to receive their allocated Australian Government funding for VET, states have had to commit to the annual funding levels with no secured financial commitment by the Australian Government after 30 June 2005.

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The current proposed agreement requires an additional funding commitment from the Australian Government and the states. Under the proposal, the states will be required to match the additional Australian Government contributions, with part of the funds being allocated to recurrent funding and the balance being directed to the National Strategic Initiatives Fund, a new arrangement under the proposed agreement. States have raised questions as to whether this may affect currently funded programs and may not necessarily address skill shortages identified. Current negotiations suggest that the Australian Government will increase its funding level by $174.7 million over the life of the agreement.

The National Strategic Initiatives Fund will be used to support national initiatives intended to improve the flexibility and responsiveness within the VET system and enhance training outcomes. At this stage, the arrangements are unclear and it is unknown how the funding will be allocated or what projects are likely to come under the fund.

The proposed agreement contains increased reporting and audit requirements for the states, which are likely to provide an additional administrative burden for service providers.

The new ANTA, covering funding from 2005-2008, is now unlikely to be finalised by June 2005. Funding from the Australian Government from 1 July 2005 is not certain until final agreement is reached. Negotiations are continuing at the ministerial and senior officials levels.

Government Schools Grants The Territory and the Australian Government are close to finalising funding arrangements for government and non-government schools for the 2005-2008 quadrennium. Bilateral funding agreements between the Australian Government and each of the states and territories are subject to the Schools Assistance Act 2004 (the Act), the Regulations and Administrative Guidelines.

The draft bilateral agreement for the Territory has remained relatively free of input controls, however numerous new conditions have been attached to Australian Government funding, including the commitment to:

• strengthen the autonomy of principals and school governing bodies over education programs and staffing;

• publicly provide performance information for individual schools;

• extend common testing standards to include Civics and Citizenship education, and Information and Communications Technology; and

• provide student reports against national benchmarks for specified years of schooling.

The Australian Government has used the schools funding agreement to promote its industrial relations agenda, requiring capital projects in excess of $5 million to comply with the National Code of Practice for the Construction Industry and implementation guidelines. This condition does not affect the Territory, which already falls under Australian Government industrial relations powers.

The terms of the draft agreement are reasonably flexible, and are broadly consistent with the current direction of education policy in the Territory. However, there is concern that the states may be expected to sign bilateral agreements before the regulations to the Act, which may contain significant funding conditions, are finalised in May 2005.

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Indigenous Education Progress on the 2005-2008 Indigenous Education agreement, covering a range of programs under the Indigenous Education (Targeted Assistance) Act 2000, was delayed in 2004 due to the timing of the Australian election, however negotiations are close to conclusion.

The Indigenous Education agreement covers funding for government and non-government education providers for a range of purposes, including Supplementary Recurrent Assistance, Indigenous Tutorial Assistance, and specialised literacy and numeracy programs.

The new agreements, covering the 2005-2008 quadrennium, include revisions to the targeting of the tutorial assistance program, and a stronger emphasis on performance targets.

Subject to agreement on performance targets, the Indigenous Education agreement between the Australian Government and the Northern Territory should be finalised in the near future.

Supported Accommodation Assistance Programme V (SAAP V) The current SAAP Agreement is due to expire on 30 June 2005.

Negotiations for SAAP V have been ongoing at both officer and ministerial level and it is anticipated that the revised agreement will commence on 1 July 2005.

The major issues surround the funding contributions of the states and the Australian Government. The Australian Government is seeking an increased financial commitment by the states to compensate for the redirection of Australian Government funds to a separate innovation fund for pilot programs. To maintain current levels of funding for SAAP programs, the Territory is being asked to increase its funding commitment by about 30 per cent while the Australian Government reduces its funding by about 16 per cent.

The states have highlighted that growth in demand for SAAP services is expected to increase costs at a faster rate than the indexation of the Australian Government’s contribution.

Service providers have commented that they are happy with the current programs offered under SAAP IV and are concerned that any further pilot programs will merely limit funding to programs currently on offer.

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Chapter 6

Territory Own-Source Revenue Overview

Northern Territory own-source revenue comprises taxes, fees, charges, miscellaneous property income, interest received and profit or loss on disposal of assets. Full details of revenue collected from Territory sources are set out in Budget Paper No. 3.

The following measures, announced as part of the 2004-05 Budget, will take effect from 1 July 2005:

• an increase in the payroll tax exemption threshold from $800 000 to $1 million; and

• the abolition of debits tax from 1 July 2005.

Details of the key revenue measures introduced in this Budget are detailed in Chapter 4. In summary, these measures include:

• abolition of electronic debit transaction duty from 1 July 2005;

• an increase in the first home buyer stamp duty concession from the first $125 000 to the first $200 000 of the value of a home. This is an increase in the maximum concession from $3640.60 to $6800 and will apply from 3 May 2005;

• an increase in the payroll tax exemption threshold from $1 million to $1.25 million from 1 July 2006; and

• a number of other amendments to enhance the efficiency and effectiveness of the Territory’s tax regimes.

This chapter provides an explanation of the Territory’s revenue regime and an analysis of how it compares with the other jurisdictions. This comparison is based on independent assessments by the Commonwealth Grants Commission (the Commission) of state and territory revenue regimes.

This analysis and the comparison of tax regimes confirms the Territory’s revenue regime is the lowest of the states. The Northern Territory’s Fiscal Strategy commits the Territory to having a competitive tax regime.

As part of national tax reform initiatives contained in the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (the Intergovernmental Agreement), the Government will abolish:

• stamp duty on unquoted marketable securities from 1 July 2006;

• stamp duty on grants and renewals of leases and franchises from 1 July 2006;

• stamp duty on hiring arrangements from 1 July 2007; and

• stamp duty on non-residential conveyances, excluding land, from 1 July 2009.

Further details of national tax reform are provided in this chapter.

In addition, this chapter presents a statement of the Territory’s forecast tax expenditures for 2005-06 through to 2008-09. Tax expenditures are the revenues forgone by Government as a result of the provision of concessions and exemptions.

Appended to this chapter is an interjurisdictional comparison of a selection of household charges imposed by government-related entities.

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Territory Own-Source Revenue

Commonwealth Grants Commission Assessments of Effort and Capacity The ability of the states to generate revenue from their own sources is a result of the size of each jurisdiction’s revenue base and the tax rates the Government applies.

The relative magnitude of each jurisdiction’s revenue base is determined by economic activity and natural resource endowments. Revenue capacity represents potential revenue levels if national average tax rates are applied to each jurisdiction’s revenue base. This is usually expressed as a ratio of the national average revenue capacity.

Revenue capacity is calculated as the ratio of:

• the Commission’s assessment of the per capita revenue a state could raise by applying average rates (standardised revenue per capita); to

• the Australian average per capita revenue actually raised (standard revenue per capita).

Revenue effort compares actual revenue collections with revenue capacity. Average revenue effort is set at 100 per cent. Above-average revenue effort will be greater than 100 per cent and below-average effort will be less than 100 per cent.

The Commission assesses revenue capacity in its analysis of the relative fiscal needs of the states to determine goods and services tax (GST) revenue shares. The comparisons of the states’ assessed revenue-raising capacity and effort contained in this chapter are made using 2003-04 data, as this is the most recent data used by the Commission.

Table 6.1 provides a comparison of the Commission‘s assessment of total state own-source revenue-raising effort in 2003-04 for the states. The Commission’s assessment of total state own-source revenue includes taxation, mining revenue and contributions by trading enterprises, including government owned corporations.

Table 6.1: 2003-04 Revenue Effort by Jurisdiction – Total State Own-Source Revenue

NSW Vic Qld WA SA Tas ACT NT

99.98 98.93 91.47 109.94 113.28 106.71 95.27 93.79

Note: 100 per cent represents national average.

Source: Commonwealth Grants Commission 2005 Update Report.

The assessment in Table 6.1 shows that the Territory has the second lowest state own-source revenue-raising effort of the states, with Queensland the lowest. This is an increase on the 2002-03 figures (89.97 per cent), where the Territory had the lowest own-source revenue raising effort. This result is due to an increased contribution by trading enterprises to own-source revenue in the Territory.

Table 6.2 provides a comparison of the Commission’s assessment of total taxation-raising effort in 2003-04 for the states.

Table 6.2: 2003-04 Revenue Effort by Jurisdiction – Total Taxation


99.39 105.40 86.93 103.66 118.19 95.78 108.60 90.58

Note: 100 per cent represents national average.


The assessment in Table 6.2 shows that the Territory has the second lowest taxation-raising effort of the states behind Queensland.

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The Territory’s assessed effort increased marginally from 90.11 per cent in 2002-03 to 90.58 per cent, largely based on increased conveyance duty receipts, while Queensland’s assessed effort increased from 85.77 per cent to 86.93 per cent on the basis of increased effort across most revenue streams.

There are various taxes, user charges and royalties assessed by the Commission where the Territory’s rate of tax varies from the Australian average rate, or where the Territory does not impose tax at all, such as land tax, mortgage stamp duty and fire and emergency services levies. Accordingly, the Territory’s effort is assessed by the Commission as the lowest of all the states in relation to total taxation, mineral royalties and public safety charges (including fire and emergency service levies).

Table 6.3 details this comparison.

Table 6.3: 2003-04 Tax Effort of Significant Revenue Streams


% % % % % % % %

Payroll tax 109 95 85 97 109 96 132 93

Conveyance duty 97 118 75 126 120 98 112 115

Land tax 86 129 68 131 199 292 125 0

Gambling taxes 96 130 100 26 129 89 63 97

Vehicle registration fees1 134 66 111 79 87 84 132 56

Total Taxation2 99 105 87 104 118 96 109 91

Public safety charges 79 108 147 85 119 245 33 19

Mineral and petroleum royalties 79 75 100 109 92 136 0 70

Total Taxation, Royalties, and Public Safety and Emergency Services Charges3

98 105 89 104 117 100 107 87

Notes: 100 per cent represents a national average revenue effort.

The above figures are rounded to the nearest whole number.

1 Vehicle registration fees exclude heavy vehicles.

2 The total taxation figure is not the total for the taxes appearing in the table.

3 The total taxation, royalties, and public safety and emergency services charges figure is not a total for the table.


As detailed in Table 6.3, on 2003-04 figures, the Territory’s conveyance duty revenue-raising effort (115 per cent) is higher than the national average (100 per cent). However, the relatively high conveyance duty effort is offset by the Territory not applying a land tax or mortgage duty. The Territory also has a low revenue-raising effort in relation to vehicle registration fees and taxes.

The Territory’s payroll tax revenue-raising effort (93 per cent) is lower than the national average and has dropped significantly from 2002-03 figures (111 per cent). This can be attributed in part to the reduction of the payroll tax rate to 6.2 per cent from 1 July 2003, and is also attributable to lower payroll tax revenue due to the early completion of several large construction projects and the issuing of a number of large payroll tax refunds.

The Territory’s remaining taxes during the assessment period were either less significant or on a par with the other jurisdictions.

To further understand the Territory’s position, a more detailed analysis of the major components of own-source revenue is provided later in this chapter.

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Analysis of Territory Revenue

Chart 6.1 provides an overview of the Territory’s major own-source revenues broken down by Uniform Presentation Framework categories. More detail on the Uniform Presentation Framework estimates is provided in Chapter 9.

Chart 6.1: 2005-06 Main Own-Source Revenue Categories

Note: Excludes payroll tax collected from general government.

Source: Northern Territory Treasury.

The projected revenue for 2005-06 from these main own-source revenue categories totals $348 million. As indicated in Chart 6.1, the most significant portion is derived from taxes on employers (payroll tax), which comprises $109.5 million, or 31.5 per cent of these own-source revenue categories. Taxes on property (comprising stamp duties on financial and capital transactions as well as financial institutions transaction taxes) are expected to comprise $80.6 million, or 23.2 per cent of the Territory’s own-source tax and royalty revenue in 2005-06.

The following section provides an interjurisdictional comparison by selected revenue sources.

Payroll Tax Payroll tax is payable at a rate of 6.2 per cent on the amount by which wages paid by employers exceed the general exemption threshold of $1 million (from 1 July 2005).

The threshold is reduced if an employer:

• pays wages in the Northern Territory and elsewhere in Australia. In this case, the threshold is reduced to reflect the level of wages paid outside the Territory. For example, if an employer pays 70 per cent of their wages in the Territory and 30 per cent interstate, the general exemption threshold is reduced by 30 per cent to $700 000; or

• only employs for part of a financial year. In this case, the threshold is reduced to reflect the period that the employer paid wages during the year. For example, if an employer only pays wages for three months of the year, the general exemption threshold is reduced by 75 per cent to $250 000.

Revenue from payroll tax is forecast to be $109.5 million in 2005-06 (excluding that raised from the general government sector) and continues to be the Territory’s single most significant own-source tax revenue.

The Territory’s payroll tax rate has reduced from 6.5 per cent in 2001 to its current 6.2 per cent rate. As shown in Chart 6.2, the Territory’s payroll tax rate of 6.2 per cent is slightly higher than the states’ average payroll tax rate.

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Chart 6.2: 2003-04 Payroll Tax Maximum Rates

Note: As at 1 January 2005.

Source: State legislation as at 22 April 2005.

Following the increases in the Territory’s payroll tax exemption threshold announced in the 2004-05 Budget (from $600 000 to $800 000 on 1 July 2004, then from $800 000 to $1 million on 1 July 2005), the threshold where payroll tax commences in the Territory will be higher than the majority of states. Chart 6.3 shows that from 1 July 2005, the Territory will have a payroll tax threshold that is above average, and greater than all states other than Tasmania and the Australian Capital Territory.

The Government has announced in the 2005-06 Budget that the payroll tax threshold will increase further to $1.25 million from 1 July 2006, providing the Territory with the equal highest threshold in Australia, consistent with that in the Australian Capital Territory.

Chart 6.3: 2004-05 Payroll Tax – Tax-Free Threshold


Stamp Duty Total revenue from the Territory’s stamp duties is forecast to be $120.15 million in 2005-06. The main components of stamp duty are conveyance, insurance and motor vehicle transfer of registration duties. These are shown in Chart 6.4.

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Chart 6.4: Northern Territory Stamp Duty Collections

tory Treasury.

cterised by a high number of residential property sales

e

les.

n

Conveyance Duty erritory’s conveyance duty is derived from conveyances of dutiable property in

on assessed the Territory’s capacity to raise stamp duty on over half

alls

Territory’s

state and territory conveyance stamp

s.

e=estimated figures.

Source: Northern Terri

The 2004-05 estimate is characombined with higher property values. The conveyance stamp duty projection for 2004-05 is $71.79 million, up from actual receipts in 2003-04 of $64.47 million.

Conveyance duty revenue in 2004-05 is significantly higher than the estimate of $55.24 million originally forecast in the Budget. It was anticipated that conveyancduty collections from residential property sales would decrease in 2004-05 as a result of an expected reduction in the high rate of residential property sales experienced in 2003-04. Instead, the market continued to perform strongly throughout 2004-05, resulting in increased duty from residential property sa

In 2005-06, conveyance stamp duty collections are expected to be $73.15 million othe basis of market indicators, such as finance approvals and building approvals, that suggest the residential property market will continue to experience buoyant conditions throughout the year.

The Tthe Territory. Such property mainly comprises real estate and transfers of businesses.

The Commissiconveyances as the second lowest in Australia, behind Tasmania, and justthe national average. This is primarily because the majority of transactions in the Territory were at the lower end of the value range. Previously, the Territory was assessed as having the lowest capacity to raise stamp duty on conveyances, but fin the median prices of houses in New South Wales and Victoria lowered those states’ capacities and increased the other states’ capacities on a relative basis.

The Territory’s revenue-raising effort in this category is the fourth highest between the states, and slightly above the national average. However, there are aspects of the Territory’s conveyance stamp duty regime on which the duty load is comparatively less than other jurisdictions. In the main, this includes the home purchase stamp duty concessions.

A more practical comparison of the effect ofduty is obtained by comparing the conveyance stamp duty payable on the purchase of a median-priced home in each capital city. Chart 6.5 sets out themedian house prices for the December 2004 quarter for Australian capital citie

58


These prices are used as the basis for the stamp duty comparisons in Charts 6.6, 6.7 and 6.8 below.

Chart 6.5: Median House Prices for Australian Capital Cities for the December 2004 Quarter

Source: Real Estate Institute of Australia.

As can be seen from Chart 6.5, median house prices in Darwin are similar to those in Perth, Adelaide and Hobart, but significantly lower than in Sydney, Melbourne, Brisbane and Canberra.

As an example of the Territory’s comparative effort, Chart 6.6 indicates the effect of the Territory’s conveyance duty rate as applied to the purchase of a median-priced residence in Darwin without the benefit of the stamp duty principal place of residence rebate or first home owner concession.

Chart 6.6: Conveyance Duty Payable on Purchase of a Median-Priced Residence in Capital Cities Based on Rates as at 1 July 2005

Source: Real Estate Institute of Australia and state legislation as at 22 April 2005.

As shown in Chart 6.6, the Territory’s conveyance duty on a median-priced residence in a capital city is below the national average and the fourth lowest in Australia, behind Tasmania, Western Australia and Queensland.

Chart 6.7 shows that the Territory’s conveyance duty on a principal place of residence in a capital city is below the national average, and lower than all states other than Queensland and Tasmania. This is partially the result of the $1500 stamp duty principal place of residence rebate. Although not reflected in Chart 6.7, Territory homebuyers also benefit from not having to pay stamp duty on any mortgage security or, for investors, land tax (which is normally payable annually) or vendor stamp duty (which applies to investors who sell New South Wales real estate).

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Chart 6.7: Conveyance Duty Payable on Purchase of a Median-Priced Principal Place of Residence Based on Rates as at 1 July 2005


Chart 6.8 provides an interjurisdictional comparison of the stamp duty levied for a first home owner on the purchase of a median-priced home in a capital city. As indicated below, the stamp duty payable in the Territory by a first home owner on a median-priced home in a capital city is well below the national average, and the fourth lowest in Australia. This is based on Territory first home buyers being given stamp duty relief on the first $200 000 of their purchase from 3 May 2005 as announced as part of the 2005-06 Budget (the concession was previously on the first $125 000 of the purchase).

Chart 6.8: Conveyance Duty Payable on Purchase of a Median-Priced First Home Based on Rates as at 1 July 2005

Note: Victoria has a $5000 First Home Bonus for first home buyers who are eligible for the $7000 First Home Owner Grant. The bonus is available on contract to purchase Victorian properties where the contract is entered into on or after 1 May 2004 and before 9 July 2005, and where the consideration paid under the contract is no more than $500 000.


Insurance Duty Insurance duty is imposed on general and life insurance policies, with general insurance comprising the majority of the revenue collected from this stamp duty. Revenue from insurance duty is forecast to be $22.99 million in 2005-06.

Queensland is the only state to raise stamp duty on workers’ compensation premiums. As shown in Chart 6.9, the total tax load on domestic insurance in New South Wales and Victoria is significantly above the national average when fire services levies are taken into account, with the Territory being one of the lower-taxing jurisdictions. These states collect their fire services levy as a rate applied to insurance premiums.

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Rather than utilising the domestic insurance base, Tasmania, Queensland, South Australia and Western Australia each impose their emergency or fire services levies on property owners through local councils. Tasmania also raises the levy on certain types of non-domestic insurance, while Queensland has an ambulance levy on general public electricity accounts.

The Territory does not impose any emergency or fire service levies on the general public, although in line with the states it does impose some fines and charges for the provision of fire services in private towns and fire alarm monitoring.

Chart 6.9: Total State and Territory Taxes on Domestic Insurance as at 22 April 2005


Motor Vehicle Registration Duty Stamp duty is levied on the transfer and initial registration of motor vehicles. Generally, the duty is levied on the purchase price of the vehicle. Revenue from this source in 2005-06 is forecast to be $17.08 million.

The Territory rate of duty, as shown in Chart 6.10, is slightly below the national average for a new vehicle valued at $32 000. Furthermore, unlike most jurisdictions, the Territory does not impose a higher rate of duty on luxury cars.

Chart 6.10: Motor Vehicle Registration Duty on a New Vehicle Valued at $32 000 as at 22 April 2005


Land Revenue This category includes taxes on the ownership of land, where the taxes are based on the assessed unimproved value of the land. It also includes any metropolitan land planning and development levies that are included in the land tax base of some states.

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Land tax is generally levied on commercial land and investment residential property, although a general exclusion is provided for land used for primary production.

The Territory does not impose a land tax. For the purposes of its 2005 assessment, the Commission has assessed a notional land tax collection of approximately $21.6 million based on an average of the other states’ land tax regimes, if the Territory collected a land tax.

Gambling Taxation Gambling taxes constitute a significant proportion of state and territory revenues. Revenue from the Territory’s gambling taxes (including the Community Benefit Levy) is forecast to be $50.56 million in 2005-06.

The Territory raises gambling revenues from taxes levied on the value of bets placed with bookmakers, taxes levied on the value of investments in lotteries, taxes levied on the turnover of gaming machines in clubs and hotels and taxes levied on player losses at casinos. Similar taxes are raised in all other jurisdictions.

The Darwin Skycity casino has received a partial rebate of the casino tax that it is required to pay, in consideration for relinquishing the exclusive right to operate gaming machines.

The rebate for the Darwin Skycity casino ceases from 30 June 2005. Lasseters Casino in Alice Springs received a similar rebate. However, this ceased from 30 June 2003.

Table 6.4 provides a breakdown of the revenue that the Territory’s gambling taxes are expected to raise in 2005-06.

Table 6.4: Estimated Revenue from Gambling Taxes for 2005-06

Tax/Duty $000

Wagering Taxes 5 431

Internet Gaming 521

Casino 8 516

Bookmakers – Racing and Sports Betting 5 479

Community Gaming Machines 18 063

Lotteries 11 046

Community Benefit Levy 1 505

Total 50 561


Financial Taxes Financial taxes generally comprise debits tax and stamp duty on leases, mortgages, hiring arrangements and electronic debits.

Debits tax is imposed on debits to cheque accounts or accounts with cheque facilities. The rates vary according to the amount of the debit. Debits tax rates and thresholds are similar in all jurisdictions except New South Wales, where the tax has been abolished, and Tasmania, where the rates that apply per threshold are half of the other states.

In March 2004, all state and territory Treasurers confirmed that debits tax will be abolished by July 2005 as part of the national tax reform arrangements. The Territory legislated in 2004 to abolish debits tax from 1 July 2005.

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Although the Territory does not charge stamp duty on mortgages, it does apply stamp duty to the grant and renewal of leases and franchises, a broad hiring arrangement base, and a stamp duty on electronic debits made to bank accounts (electronic debit transaction duty). However, the Government has announced that electronic debit transaction duty is to be abolished from 1 July 2005, stamp duty on the grant and renewal of leases and franchises is to be abolished from 1 July 2006 and stamp duty on hiring arrangements is to be abolished from 1 July 2007.

Table 6.5 sets out the revenue that the Territory’s financial taxes and duties are expected to raise in 2005-06. Although debits tax and electronic debit transaction duty will be abolished from 1 July 2005, there will be some residual collection of duty in relation to returns for the month of June 2005, that will not be collected until July 2005.

Table 6.5: Estimated Revenue from Financial Taxes and Duties for 2005-06

Tax/Duty $000

Debits Tax 520*

Lease Duty 1 296

Mortgage Duty 0

Hiring Arrangement Duty 4 582

Electronic Debits Duty 221*

Total 6 619

*These taxes are abolished from 1 July 2005, but revenue will be collected in July 2005 in relation to the June 2005 returns from financial institutions.


Mining Revenue Mining revenue includes collections of royalties or rent equivalents levied on mining activity. Mining revenue is forecast to be $48.1 million in 2005-06.

The Territory’s mining royalty revenues are based on both profits-based and ad valorem regimes, whereas ad valorem regimes predominate in other jurisdictions.

National Tax reform National tax reform commenced on 1 July 2000. Key to the new arrangements was the replacement of wholesale sales tax with a broad-based GST, agreed removal of certain state taxes and the review of others. Although the original tax reform package provided sufficient capacity to remove a number of state taxes, the removal of food from the GST base meant that the final tax reform package had limited capacity for removal of additional taxes beyond some financial taxes and tourism marketing duty.

Territory taxes that have already been abolished In accordance with the Intergovernmental Agreement, the Territory abolished tourism marketing duty from 1 July 2000 and stamp duty on quoted marketable securities and financial institutions duty from 1 July 2001.

Debits tax to be abolished from 1 July 2005 The Intergovernmental Agreement also sets out the abolition of debits tax by 2005, subject to review by the Treasurers’ Conference.

As mentioned earlier in this chapter, the Australian Government, states and territories agreed to abolish debits tax from 1 July 2005 at the Treasurers’ Conference meeting on 26 March 2004. The Territory passed legislation in June 2004 providing for the abolition of debits tax from 1 July 2005.

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Other taxes subject to Treasurer’s Conference review Under the Intergovernmental Agreement, the Australian Government, states and territories agreed to the Treasurers’ Conference reviewing, by 2005, the need to retain certain stamp duties. At the Treasurers’ Conference in March 2005 no agreement was reached regarding a review timetable and related arrangements. However, the Territory has joined with five other jurisdictions in proposing a five year timetable for abolition from 2006-07. The Territory has announced it will commence its abolition timetable from 1 July 2005 as follows.

Electronic debit transaction duty to be abolished from 1 July 2005 The Territory Government has announced the abolition of electronic debit transaction duty from 1 July 2005, as part of the 2005-06 Budget. This was a duty imposed on electronic withdrawals from accounts kept with financial institutions in the Territory.

Stamp duty on unquoted marketable securities to be abolished from 1 July 2006 Stamp duty levied on transfers of marketable securities in private companies and trusts, and in public companies and trusts where the securities are not quoted on the Australian Stock Exchange or another recognised stock exchange, is to be abolished from 1 July 2006.

Stamp duty on grants and renewals of leases and franchises to be abolished from 1 July 2006

Stamp duty levied on the grant and renewal of non-residential tenancy agreements and franchise arrangements is to be abolished from 1 July 2006. However, the transfer of a lease or franchise arrangement will continue to be subject to conveyance duty until duty on non-residential conveyances is abolished.

Stamp duty on hiring arrangements to be abolished from 1 July 2007 Stamp duty levied on the rent paid in respect of the hire of goods, including consumer and producer goods and instalment purchase arrangements, is to be abolished from 1 July 2007.

Stamp Duty on non-residential conveyances, other than land, to be abolished from 1 July 2009

Stamp duty levied on the value of non-residential property conveyances, other than land, is to be abolished from 1 July 2009.

Tax Expenditures Tax concessions are often provided to benefit a specified activity or class of taxpayer. They are expenditures in the sense that their impact on the budget is similar to direct outlays, and they can be used to achieve similar goals to spending programs.

Tax expenditures can be provided in a variety of ways including by way of exemption, deduction, rebate or reduced tax rate.

The tax expenditure statement details revenue estimated to be forgone by the Government, or financial benefits obtained by taxpayers, as a result of tax exemptions or concessions provided by the Government. Identifying this expenditure assists in providing a more accurate picture of what the Government is intending to spend to assist various groups or industries.

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The tax expenditures identified in this section only relate to the more important concessions applicable in the Northern Territory and are not intended to be exhaustive. Tax expenditures in relation to exemptions or concessions provided to general government agencies are not included.

In accordance with the Fiscal Integrity and Transparency Act, the tax expenditure statement provides forecast information for 2005-06 and the three following financial years.

Methodology Tax expenditures have been estimated by applying the benchmark rate of taxation to the forecast volume of activities or assets exempted by a particular concession. Only those future events that are certain or highly likely to impact on assumed tax bases or tax rates have been taken into consideration in estimating future tax expenditures (for example, the Government’s commitment to reduce payroll tax in 2005-06). Otherwise, the existing taxation arrangements have been assumed to apply for future years.

Measuring tax expenditures requires the identification of:

• a benchmark tax base;

• concessionary taxed components of the benchmark tax base, such as a specific activity or class of taxpayer; and

• a benchmark tax rate to apply to the concessionary taxed components of the tax base.

The establishment of a tax benchmark provides a basis against which each tax concession can be evaluated. The aim of the benchmark is to determine which concessions are tax expenditures as opposed to structural elements of the tax.

By definition, tax expenditures are those tax concessions not included as part of the tax benchmark.

Payroll Tax 2005-06 2006-07 2007-08 2008-09

Tax expenditure ($ million) 85.7 92.9 97.2 101.9

The benchmark tax base for payroll tax is assumed to be all wages, salaries and supplements paid in the Northern Territory, as defined in the Pay-roll Tax Act. The benchmark tax rate is assumed to be the payroll tax rate that will apply in 2005-06, being 6.2 per cent. The Government’s revenue initiatives announced in the 2004-05 and 2005-06 Budgets to reduce payroll tax in 2005-06 and 2006-07 have been factored into the tax expenditure forecasts for payroll tax.

Tax expenditure in relation to many payroll tax concessions is difficult to estimate, as data is not generally collected in relation to employers that do not have a payroll tax liability. Accordingly, the estimated tax expenditure reported above has been derived by using high-level Australian Taxation Office data about wages paid by employers in the Northern Territory and comparing this to wages information reported by employers registered for payroll tax in the Northern Territory. The difference between these two sets of data provides a reasonable estimate of wages that are not subject to payroll tax in the Northern Territory because of payroll tax concessions provided in the legislation.

The main exemptions that comprise estimated tax expenditure for payroll tax are outlined below.

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Small Business Exemption From 1 July 2005, the first $1 million of an employer’s wages are exempt from payroll tax in the Territory. Accordingly, employers with wages less than this amount in the relevant years are not required to pay tax and employers with wages that exceed this amount only pay tax on the excess.

At the payroll tax rate of 6.2 per cent, the $1 million exemption reduces an employer’s annual payroll tax liability by up to $62 000.

The Government has announced, as part of the 2005-06 Budget, that this exemption will be increased to $1.25 million from 1 July 2006.

Apprentices, Graduates and Others An exemption applies for wages that are paid or payable to:

• apprentices within the meaning of the Northern Territory Employment and Training Authority Act;

• employees receiving wages funded under the Community Development Employment Projects program; or

• graduates of approved tertiary institutions employed under trainee arrangements approved by the Commissioner of Taxes.

The exemption replaced a rebate scheme that applied prior to 1 July 1999.

Private Educational Institutions and Local Government Payroll tax does not apply to wages paid or payable by the following organisations, to the extent that those wages are paid for an employee’s services that relate directly to the purpose for which the organisation was established:

• private non-tertiary schools or colleges;

• local governing bodies; or

• religious institutions, public benevolent institutions or public hospitals.

Trade Development Zone Exemptions Prior to 1 July 2003, a broad Territory tax exemption was available to all businesses that held a Trade Development Zone licence. To obtain a licence, a business must have operated in the Trade Development Zone and satisfied any of the following criteria:

• the whole or part of the business involved the operation of a bonded warehouse for the purposes of the Commonwealth Customs Act;

• the substantial part of the business, in the opinion of the Trade Development Zone Authority, included or was intended to include a substantial amount of importing and exporting; or

• that the business, in the opinion of the Trade Development Zone Authority, provided or would provide goods or services necessary for, or ancillary to, the carrying on of another business that held a Trade Development Zone licence.

The Trade Development Zone was established to attract manufacturing and high technology industries based on exports.

From 1 July 2003, the Trade Development Zone Act was repealed and these exemptions were removed. However, a transitional payroll tax concession will apply, such that the payroll tax (if applicable) of all Trade Development Zone licensees will be waived until such time as their current licences expire.

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The cost of the payroll tax concession has been estimated, based on wage estimates of employees working for large employers based in the former Trade Development Zone.

Stamp Duty On Conveyances 2005-06 2006-07 2007-08 2008-09


The benchmark tax base is assumed to be sales of all dutiable property, including chattels, that are part of a transaction that conveys other dutiable property. The benchmark tax scale is assumed to be the stamp duty scale that will apply in 2005-06.

The Government’s revenue initiative announced in the 2005-06 Budget to increase the stamp duty concession available to first home buyers in the Northern Territory from 3 May 2005 has been factored into the tax expenditure forecasts for conveyance stamp duty.

The elements that contribute to the estimated tax expenditure are outlined below.

Corporate Reconstructions Exemption An exemption for transfers of property between commonly-owned corporations was introduced from 10 October 2002. The exemption is to allow corporate groups to reorganise the ownership of assets into more efficient structures.

The estimated value of the concession is based on the actual amount of stamp duty forgone as a result of approved corporate reconstruction exemptions and how this relates to overall conveyance stamp duty collections.

First Home Owner Concession Prior to 20 August 2002, a stamp duty concession equalling the stamp duty payable up to the first $80 000 in value (that is, up to $2096 in stamp duty) applied to the purchase of a person’s first home in the Northern Territory.

From 20 August 2002, the criteria for the concession was aligned with the $7000 First Home Owner Grant, such that it is only available to true first home buyers. In addition, the value of the concession was increased to the stamp duty payable up to the first $125 000 in value (that is, up to $3640.60 in stamp duty).

The concession has been further increased as part of the 2005-06 Budget, by increasing it to the stamp duty payable up to the first $200 000 in value (that is, up to $6800 in stamp duty).

The estimated tax expenditure for this concession is based on actual historical data collected in relation to the concession and how this relates to overall conveyance stamp duty collections.

Principal Place of Residence Rebate From 20 August 2002, a new stamp duty rebate of up to $1500 of the duty payable on the purchase of a person’s principal place of residence in the Northern Territory is available. This is equivalent to a rebate of the stamp duty on the first $60 200 of a property’s value. This concession is not available to first home buyers.

The combination of the First Home Owner Concession and the Principal Place of Residence Rebate has had the effect of increasing tax expenditures when compared to the former First Home Owner Concession.

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The estimated tax expenditure for this concession is based on actual historical data collected in relation to the rebate and how this relates to overall conveyance stamp duty collections.

Other Conveyance Stamp Duty Exemption Several other conveyance stamp duty exemptions are provided that together result in significant revenue being forgone by the Territory, the largest of these being exemptions for:

• the transfer of a company’s property, on its winding up, to a shareholder of the company entitled to the property on a distribution in kind;

• instruments made pursuant to a court order that alter the interests of the parties to a marriage. This exemption is provided under the Australian Government’s Family Law Act;

• the conveyance of property between partners of a de facto relationship on the breakdown of the relationship; and

• property transferred to public benevolent institutions, religious institutions, public hospitals and public education institutions for a purpose other than the carrying on of a commercial activity conducted by, or on behalf of, the entity.

The estimated tax expenditure for this concession is based on actual historical data collected in relation to the various exemptions that have been granted and how these relate to overall conveyance stamp duty collections.

Stamp Duty On General Insurance Policies 2005-06 2006-07 2007-08 2008-09


The benchmark tax base is assumed to be all classes of general insurance policies. This does not include life insurance policies, which are treated differently for stamp duty purposes. The benchmark tax rate is assumed to be the stamp duty rate that will apply in 2005-06, being 10 per cent of the premium payable for an insurance policy.

The estimated tax expenditure elements contributing to this are summarised below.

Workers’ Compensation Insurance Exemption An exemption is provided for workers’ compensation insurance to help reduce labour oncosts.

This item of tax expenditure has been estimated using total work health insurance policy premiums paid during past years and how these compare to total payroll data paid by employers in the Northern Territory.

Private Health Insurance Exemption An exemption is provided for private health insurance to help reduce the cost of such insurance.

The estimated tax expenditure for this exemption is based on private health insurance premium data obtained from the Private Health Insurance Administration Council.

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Stamp Duty On Leases 2005-06 2006-07 2007-08 2008-09

Tax expenditure ($ million) 0.9 0 0 0

The benchmark tax base is assumed to be any lease, agreement for a lease or franchise agreement. The benchmark tax rate is assumed to be the stamp duty rate that will apply in 2005-06, being 50 cents per $100 of total rent.

The reporting of tax expenditures on lease and franchises will not be necessary from 2006-07, with the abolition of stamp duty on the grant and renewal of leases and franchises from 1 July 2006.

The estimated tax expenditure reported above comprises the following.

Residential Property Exemption An exemption is provided for residential leases to reduce the cost of leased accommodation.

Information is not collected in relation to residential leases, as they are not subject to stamp duty. Therefore, Australian Bureau of Statistics data on occupied private dwellings have been utilised to estimate the value of this exemption.

Exemption for Commercial Leases with Annual Rent of $30 000 or Less From 1 July 2003, all commercial leases with annual rents of $30 000 or less are not subject to stamp duty.

Motor Vehicle Registration Fees 2005-06 2006-07 2007-08 2008-09



Pensioner Vehicle Concession The holder of a Northern Territory Pensioner Concession Card is able to receive a flat $104 concession on motor vehicle registration fees.

Actual historical motor vehicle registration fee data have been used to estimate this item of tax expenditure.

Mineral Royalties 2005-06 2006-07 2007-08 2008-09


The benchmark tax base is assumed to be all profitable mining operations in the Northern Territory. The benchmark tax rate is assumed to be the rate of royalty that will apply in 2005-06, being 18 per cent.


Eligible Exploration Expenditure Royalty payers are able to reduce the amount of royalty they pay in the Territory for eligible exploration expenditure (EEE) incurred for their mining operations in the Territory. However, the amount by which royalty may be reduced in this manner is limited to a maximum of 25 per cent of the amount that would otherwise be payable. Prior to 1 July 2003, EEE could be used to reduce royalty by up to 35 per cent.

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The estimated cost of this concession is based on projected future mineral royalty collections, assuming that royalty payers will seek to maximise their royalty deduction by using EEE.

Gambling Tax

Casino Tax Concessions – Community Gaming Machine Allowance The Darwin Skycity casino received a partial rebate of the casino tax that it was required to pay, in consideration for relinquishing exclusivity over gaming machines, however this rebate ceases from 30 June 2005. Lasseters Casino in Alice Springs received a similar rebate, however this ceased from 30 June 2003.

Conclusion The Territory has substantially the same revenue-raising powers as the states, however constitutional and other arrangements limit the revenue-raising base available to all states and territories.

Thus, while the Territory, like the states, has limited discretion on the range of taxes that can be applied, it has discretion over the rates of these taxes.

National tax reform has given the states and territories access to a more robust and growing revenue base but it has also further reduced the range of taxes directly available to the states and territories. This has meant states and territories are paying greater attention to the efficiency and comparability of their remaining taxes.

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Appendix

Comparison of Selected State and Territory Charges As is the case for all jurisdictions, the Territory Government levies user charges for some of the services it provides. These include electricity, water, sewerage, motor vehicle registration and public transport charges. This appendix provides comparative data on these and other selected charges.

Electricity Charges The Power and Water Corporation is the princpal generator and retailer of electricity in the Territory. It became the Territory’s first government owned corporation on 1 July 2002. The Power and Water Board is responsible for making recommendations about tariffs to the shareholding Minister.

The Government has committed to maintain current electricity charges for domestic users during its first term in office.

Commercial Commercial customers using more than 750 megawatt hours (mWh) of electricity per year are deemed ‘contestable’, and able to choose their electricity supplier. The threshold for contestability has been reduced gradually since the first electricity customers became contestable in April 2000. On 28 February 2003, the Treasurer announced that, due to the lack of competition to the Power and Water Corporation in the Territory's electricity market, the timetable for full retail contestability (originally by April 2005) would be deferred until 2010. Table 6.6 compares contestability thresholds of the jurisdictions.

Tariffs for commercial customers in the contestable market are commercial in confidence and as such cannot be readily compared between states. The following electricity charging options are available to non-contestable commercial customers in the Territory. These charges include the goods and services tax (GST) levied on electricity. The GST component of the charges is creditable and lowers the net cost for GST-registered customers.

Table 6.6: Threshold for Choice of Supplier

New South Wales (from 1 January 2002) Fully Contestable

Victoria (from 1 January 2002) Fully Contestable

Queensland (from 1 July 2004 2000) ≥ 100 mWh

Western Australia (from 1 January 2005) ≥ 50 mWh

South Australia (from 1 January 2003) Fully Contestable

Australian Capital Territory (from 1 July 2003) Fully Contestable

Northern Territory (from 1 April 2002) ≥ 750 mWh

Source: Electricity Supply Association of Australia Limited, National Competition Council.

The ‘standard tariff’ is available to non-contestable commercial customers in the Territory (using less than 750 mWh) and comprises a fixed charge of 43.14 cents per day and a usage charge of 16.30 cents per kilowatt hour (kWh).

Another option for non-contestable commercial customers is the ‘time-of-use tariff’. This option is structured to suit businesses that consume a greater proportion of their power in off-peak periods, and comprises a fixed charge of 43.14 cents per day, and usage charges of 20.87 cents per kWh for consumption between 6am and 6pm, and 11.74 cents per kWh for consumption between 6pm and 6am.

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Also, a ‘demand tariff’ is available to businesses using more than 160 mWh per annum, and benefits customers with a relatively constant electricity load. Under this tariff, customers are subject to five charge components.

• a Peak Energy Charge for each kWh consumed in the peak period;

• an Off-peak Energy Charge for each kWh consumed in the off-peak period;

• a Peak Maximum Demand Charge for the single highest recorded kVA (a measure of electrical demand that a user places on an electrical system over a fifteen minute period) for the month incurred during the daily peak period;

• an Off-peak Maximum Demand Charge for the single highest recorded kVA for the month incurred during the daily off-peak period; and

• a Daily Fixed Charge.

Table 6.7: Northern Territory ‘Demand Tariff, Gazetted January 2003

Monthly Usage – kWh Peak—cents/kWh Off-peak—cents/kWh

First 10 000 10.8 9.86

Next 20 000 10.7 9.75

Next 50 000 10.6 9.64

Next 100 000 10.49 9.54

Next 200 000 10.38 9.43

Next 200 000 10.28 9.33

Balance 10.17 9.22

Plus

Monthly Demand – kVa Peak—$/kVa Off peak—$/kVa

First 50 24.13 3.18

Next 100 22.03 2.91

Next 300 19.93 2.65

Next 500 17.84 2.38

Next 1000 15.74 2.23

Balance 14.68 2.12

Plus System charge $3.48 per day

Source: Power and Water Corporation website.

Domestic Domestic electricity charges (generally applying to households) in the Territory comprise a fixed daily charge of 27.62 cents and usage charge of 14.02 cents per kWh for a standard meter. Figure 6.11 provides a comparison of domestic charges based on national average consumption of 1.25 mWh per month.

The total average domestic electricity charge in the Territory is 16.04 cents per kWh, higher than the national average of 15.15 cents per kWh. Higher charges in the Territory are reflect cost and are influenced by the absence of cheaper fuel sources, economies of scale, and transport costs.

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Figure 6.11: Domestic Average Cents/kWh Charge, at June 2004 (based on consumption of 1.25 mWh per month)

Note: Prices are for capital cities. However, under the Government’s uniform tariff policy, prices charged in Darwin apply across the Territory.

Source: Power and Water Corporation Annual Report 2003-04.

Water and Sewerage Charges

Water Water charges in the Territory are based on a fixed daily charge reflecting the size of the meter (as set out in Table 3) and a usage charge of 67.65 cents per kilolitre (kL).

Table 6.8: Water Meter Charges, effective January 2003

Meter Size Daily Charge

Up to 25mm 28.25c

26 to 40mm 72.32c

41 to 50mm $1.1275

51 to 100mm $4.5203

101 to 150mm $10.1680

151 to 200mm $18.0810

Source: Power and Water Corporation website.

The fixed daily charge is proportional to the meter size for meters greater than 200mm. In most instances, meters up to 25mm are used for domestic customers.

Figure 6.12 shows the average prices for each capital city apart from Hobart, which determines water and sewerage prices on a different basis to other jurisdictions. Darwin’s average water charges (which apply across the Territory), at 91 cents per kilolitre, are the lowest of all jurisdictions and significantly lower than the national average of 116 cents per kilolitre.

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Figure 6.12: Annual Domestic Water Charge, at June 2004 (based on consumption of 450 kL)

Note: Prices are for capital cities. However, under the Government’s uniform tariff policy, prices charged in Darwin apply across the Territory. Tasmania has been excluded due to an inconsistent pricing scheme.


Sewerage Figure 6.13 shows the Territory’s average domestic sewerage charge, at $322 per annum, is slightly above the national average, but is the third lowest of the jurisdictions.

Figure 6.13: Annual Household Sewerage Charge, at June 2004

Note: Prices are for capital cities. However, under the Government’s uniform tariff policy, prices charged in Darwin apply across the Territory. Tasmania has been excluded due to an inconsistent pricing scheme.


Bus Fares Figure 6.14 shows the Territory’s standard adult bus fare for travelling one ‘zone’ at 1 March 2004 is the lowest in Australia, at $1.40.

Figure 6.14: Adult, One Zone Bus Fare Travelling, at March 2005


Source: Department of Infrastructure, Planning and Environment.

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Motor Vehicle Registration All states and territories collect vehicle registration fees and taxes of some kind.

Figure 6.15 shows that, for a medium sized passenger vehicle for 12 months, the Territory has the third lowest cost for renewing registration and third party insurance in Australia.

Figure 6.15: Annual Registration Fees and Charges for a Medium Sized Passenger Vehicle*, at March 2005

*Based on a 4 cylinder Toyota Camry CSI Sedan.


Source: Department of Infrastructure, Planning and Environment.

The Territory’s registration renewal fees (excluding third party insurance) are the lowest in Australia and well below the national average.

The Territory’s compulsory third party premiums reflect the higher costs and risks inherent in third party insurance arrangements in the Territory, including potentially expensive common law claims available to non-resident drivers and passengers. Premium revenue is used to support the scheme and is not returned to government.

Fire and Emergency Services Public safety and emergency services charges consist of fire insurance or emergency service levies and other charges.

The Northern Territory and the Australian Capital Territory are the only jurisdictions that do not tax residents and businesses by imposing a general fire or emergency services levy. These charges are imposed in a variety of ways among the states, including through recurrent levies based on insurance premiums and land ownership.

However, the Territory does impose user charges on the monitoring of smoke alarms under its NTFAST scheme and for the provision of fire services in private towns.

Conclusion The Territory’s household user charges are, in total, competitive with the states’ average. Charges in the Territory for electricity and sewerage services marginally exceed the national average, while charges for domestic water and bus fares are well below the national average.

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Chapter 7

Commercial Issues Overview

This section outlines the commercial policies affecting the way in which Territory Government businesses operate and the way in which the Territory Government deals with the private sector.

It provides an overview of:

• the Government Business Divisions and Government Owned Corporations frameworks which recognise that business activities of Government must operate on a more commercial basis than general government agencies;

• Territory Partnerships, which outlines the framework for dealings between the Territory Government and the private sector in relation to public private partnerships; and

• the risks faced by the Territory, in particular those under contingent liabilities arising from guarantees and indemnities that the Territory has issued when dealing with the private sector and other governments.

Commercial Frameworks Government has established legislative and administrative frameworks governing the operation of Government owned businesses. The intent of such frameworks is to provide greater incentives to manage costs, increase efficiency and improve the quality of the goods and services delivered. Typically, Government owned businesses are managed according to best commercial practices in recognition that:

• their operations are similar to those of private sector businesses; and/or

• they operate in a commercial environment or in competition with private sector businesses.

Government businesses that are considered suitable to operate commercially can be declared a government business division (GBD) or a government owned corporation (GOC). These businesses do not receive direct output appropriations for their commercial activities. Instead, operating revenue is primarily generated from sales of goods and services to other Government agencies, the private sector or a combination of both. Budget appropriation is provided to Government agencies to enable them to purchase goods and services from GBDs or GOCs.

GBDs are subject to the Territory’s financial management framework contained in the Financial Management Act, with the chief executive officer of a GBD accountable to the responsible Minister for financial performance.

GOCs are subject to the Government Owned Corporations Act, which seeks to replicate as far as possible the shareholder model of corporate governance. This structure essentially creates an ‘arm’s length’ relationship between the GOC Board (or management) and the Government as owner or shareholder.

The Territory Insurance Office, another Government business, operates under its own legislative framework consisting of the Territory Insurance Office Act and the Territory Insurance Office Regulations. It also has a Board that is accountable for its performance. The Territory Insurance Office is subject to a prudential regulatory regime, similar to that applying to competitors in insurance and financial services, but administered by Treasury.

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Commercial Issues

Government Business Divisions The Territory has established GBDs in order to improve operating efficiency and to reduce Government and business costs, thereby freeing up Government resources for other expenditure priorities.

The following commercial practices have been implemented for GBDs:

• full attribution of costs (including tax equivalents);

• efficient pricing based on costs;

• commercial accounting, operation under a charter of operation and establishment of an audit committee;

• identification and budget funding of community service obligation (CSO) payments, to compensate GBDs for undertaking non-commercial activities at the direction of Government; and

• performance monitoring.

GBDs are required to comply with competitive neutrality principles which seek to ensure a level playing field with private sector counterparts and that resources controlled by GBDs are determined by relative efficiency, rather than advantages accruing as a result of Government ownership.

Competitive neutrality complaints may arise where GBDs provide services in competition with private sector businesses. Northern Territory Treasury has been charged with investigating any such complaints and advising the Treasurer and the responsible Minister of the results of such investigations. Should a complaint be upheld, the Government decides, on a case by case basis, the appropriate action to be taken in order to overcome any net competitive advantage identified by the complainant.

The current emphasis of GBD reform is to build on initiatives to date by encouraging a greater commercial focus, improved management practices, additional efficiency and productivity gains, ensuring value for money from expenditure on CSOs and more rigorous performance monitoring. Charters of operation have been reviewed to ensure that operational and commercial boundaries are appropriate in the light of market developments that have occurred since GBDs were established in the mid 1990s.

During 2004-05, as part of the GBD reform process, amendments were made to the Darwin Port Corporation Act in order to align the governance arrangements with those in place for other government businesses and statutory authorities and to clarify the roles and responsibilities of Government, the corporation and the board.

Government Owned Corporations The Government Owned Corporations Act adopts the shareholder model of corporate governance. The objective of the Act is to impose capital market-type disciplines on government owned businesses and to replicate the corporate governance structures of private companies incorporated under the Corporations Act 2001. Power and Water Corporation (PWC) became the Territory’s first GOC on 1 July 2002.

Key elements of the Territory GOC model are:

• corporations established under their own legislation but governed by an overarching legislative framework based on the Australian Government’s Corporations Act 2001 principles;

• a commercial board of directors that is responsible for the operation of the business and accountable to the shareholding Minister for financial performance;

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Commercial Issues

• a shareholding Minister (usually the Treasurer) who monitors the financial performance of the corporation;

• a portfolio Minister (the Minister for Essential Services in the case of PWC) who monitors the service performance of the corporation and has broad industry policy responsibilities; and

• a Statement of Corporate Intent, which is essentially a performance agreement between the shareholding Minister and the board of the GOC.

The shareholding Minister concept represents a significant change from governance arrangements for general government agencies and for GBDs under the Financial Management Act. Under the Financial Management Act, the chief executive officer of a GBD is directly accountable to Government for the performance of the business. GBD Boards generally have an advisory role, with Ministers responsible for business decisions, which may or may not be taken on the advice of the Board.

Conversely, under the GOC framework, the commercial Board of Directors is the decision-making body and is accountable for its decisions. The Board is accountable to the shareholding Minister for financial performance and to the portfolio Minister for the service quality aspects of a GOC’s business.

GOCs are not subject to the Financial Management Act, reflecting the policy intent of operational autonomy.

At this time, PWC is the Territory’s only GOC. The PWC Board is accountable for the performance of the corporation. In most of PWC’s business lines, PWC is subject to a regulatory regime administered by an independent economic regulator, the Utilities Commission. This regime is applicable to any party that may operate in these areas of business in the Territory.

Like GBDs, PWC does not receive direct budget appropriation. However, through Government agencies, it receives CSO payments for non-commercial services that it provides at the direction of Government.

Community Service Obligations

A community service obligation (CSO) arises when the Government requires a GBD or GOC to carry out activities which it would not elect to do on a commercial basis or would only do so at higher commercial prices. CSOs allow the Government to achieve identifiable community or social objectives which would not be achieved if left to commercial outcomes.

Government CSO policy is aimed at clearly identifying the non-commercial functions performed by GBDs and GOCs, making the functions transparent and their delivery accountable to the community. To ensure that non-commercial functions do not affect the financial performance of the GBD or GOC, the policy provides compensation for the provision of the CSO.

The provision of CSOs through budget funding or acceptance of a lower shareholder return has two important implications:

• it enables GBDs and GOCs to manage commercial activities without having to cross subsidise non-commercial activities, promoting the development of a commercial culture within GBDs and GOCs; and

• it provides opportunity for an annual review of those activities funded as CSOs.

CSOs are provided to the GBD or GOC by the ‘purchasing’ agency. Territory Government CSO-related initiatives, listed by ‘purchasing’ agency for 2005-06 are

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presented in Table 7.1, with the following discussion on CSOs provided by the ‘purchasing agency’ outlining the key components.

Northern Territory Treasury Treasury allocates CSO funding to PWC in accordance with Government policy regarding:

• the provision of electricity supply services to domestic customers and small businesses and other organisations across the Territory at uniform tariffs ($38.0 million in 2005-06);

• the provision of electricity supply services to Tranche 4 electricity customers (primarily medium size businesses and other organisations) at a subsidised tariff ($7.4 million in 2005-06); and

• the provision of water and sewerage services to all customers at a uniform tariff ($5.0 million in 2005-06).

A variation in estimated 2005-06 funding for uniform tariff and Tranche 4 electricity customers has been applied in response to the Utilities Commission’s final determination on the regulated asset value of the PWC’s electricity networks, released on 30 March 2005.

The Utilities Commission has determined that the regulated asset value used to calculate electricity network prices in 2004 required adjustment due to revised asset valuations. Consequently, the Commission has reduced the regulated asset value of electricity networks, in place as at 1 July 2002, from $431 million to $350 million.

As network costs are a component of the total costs of electricity supply, the Commission’s decision serves to reduce the value of both the uniform tariff (approximately $9 million) and Tranche 4 (approximately $1.3 million) electricity CSOs compared to payments in 2004-05.

The uniform tariff CSO is not currently fully funded from the Budget. The unfunded component is met through PWC earning lower profits, and Government as owner accepting lower dividends, than would otherwise be the case. Conversely, the Tranche 4 CSO is fully funded as this class of customer can choose their electricity supplier under the current electricity supply industry regulatory framework.

Consequently, 2005-06 CSO estimates for PWC reflect a transfer of $1.3 million from the Tranche 4 customer CSO to the uniform tariff CSO. This has the affect of reducing the unfunded component of the uniform tariff electricity CSO while maintaining the fully funded nature of the Tranche 4 CSO.

Northern Territory Tourist Commission Northern Territory Tourist Commission provides Territory Discoveries, the Territory Government-owned tourism product wholesaler, with CSO payments to fund net costs incurred by the Northern Territory Holiday Centre in Alice Springs, specific shoulder season campaigns which assist in promoting the Territory as a year round destination, and the inclusion of small tourism operators in its reservation system ($0.4 million in 2005-06).

Department of Community Development, Sport and Cultural Affairs Territory Housing receives CSO payments from the Department of Community Development, Sport and Cultural Affairs for non-commercial activities such as:

• rental rebates for low-income families to enable them to access secure, safe and affordable accommodation (additional $1.9 million in 2004-05 and 2005-06);

• providing incentives for people with medium to low incomes to increase the level of home ownership within the Northern Territory;

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• rental subsidies for Northern Territory police personnel; and

• reducing up front costs for public housing tenants purchasing their homes through the provision of a stamp duty grant.

It is estimated that a total of $20.6 million in CSOs will be paid to Territory Housing in 2005-06.

Department of Health and Community Services PWC receives CSO payments to fund subsidised electricity, water and sewerage tariffs for pensioners under the Department of Health and Community Service’s Pensioner Concession Scheme ($3.4 million in 2005-06).

Department of Infrastructure, Planning and Environment There are four non-commercial functions carried out by Territory Wildlife Parks for which CSO funding from the Department of Infrastructure, Planning and Environment (totalling $7.8 million in 2005-06) is provided. These functions relate to:

• maintaining the Parks’ assets to a high standard to assist the growth and development of the Territory’s tourism industry;

• supporting the Territory’s biodiversity through captive breeding of endangered, rare and threatened species;

• enhancing the education of school children by teaching them the benefits of the natural environment; and

• management of the Botanic Gardens at the Alice Springs Desert Park.

Darwin Port Corporation (DPC) also receives CSO funding from the Department of Infrastructure, Planning and Environment for non-commercial activities related to the development, operation and maintenance of wharf facilities that support the cruise ship and naval presence in the Northern Territory, the Darwin fishing and tourism industry and international trade through the port of Darwin.

It is estimated that a total of $2.3 million in CSOs will be paid to DPC in 2005-06.

The full range and quantum of CSOs funded by the Territory Government are detailed in Table 7.1.

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Table 7.1: Community Service Obligation Payments

2004-05 2005-06

PURCHASING AGENCY/Provider/Description Estimate Budget

$000 $000

NORTHERN TERRITORY TREASURY 48 939 50 437Power and Water Corporation

Uniform Tariffs 40 385 43 022Tranche 4 Customers 8 554 7 415

NORTHERN TERRITORY TOURIST COMMISSION 448 448Territory Discoveries

Tourism Marketing 448 448

DEPARTMENT OF COMMUNITY DEVELOPMENT, SPORT AND CULTURAL AFFAIRS 15 730 20 560Territory Housing

Rent Subsidies 13 404 13 404Low Interest Home Loans 647 647Early Start - Deposit Assistance Scheme 60Fringe Benefits Tax on Employee Loans 48 48Interest Subsidy 400 290Stamp Duty Differential 84 84Police Rent Forgone 1 087 1 087Government Employee Housing 5 000

DEPARTMENT OF HEALTH AND COMMUNITY SERVICES 3 421 3 421Power and Water Corporation

Pensioner Concession Scheme 3 421 3 421

DEPARTMENT OF INFRASTRUCTURE, PLANNING AND ENVIRONMENT 10 542 10 101Territory Wildlife Parks 7 445 7 817

Territory Wildlife Park - Tourism 3 725 3 975Territory Wildlife Park - Threatened Species 475 475Territory Wildlife Park - Education 222 222Alice Springs Desert Park - Tourism 1 985 2 107Alice Springs Desert Park - Threatened Species 118 118Alice Springs Desert Park - Education 277 277Alice Springs Desert Park - Botanic Gardens 643 643

Darwin Port Corporation 3 097 2 284 Small Craft Services (Marine Industry Support) 280 274 Swires Shipping (NT Express) 256 Cruise and Defence (Wharf Precinct) 1 549 1 507 Tourism and Real Estate (Wharf Precinct) 480 473 Security - City Wharves Infrastructure 502 Hai Win Shipping Service (MV Ursula) 30 30

TOTAL 79 080 84 967

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Tax Equivalents Regime GBDs incur similar tax liabilities to privately owned organisations. This measure ensures greater parity between the cost structure of GBDs and the private sector, aiding in the achievement of competitive neutrality. For example, PWC and DPC pay local government rates equivalents to the Central Holding Authority.

Additionally, although PWC has not had to pay income taxes prior to 2004-05 due to significant carry forward tax losses, it is estimated that PWC will pay $15.5 million in income tax equivalents for 2004-05 and $12.9 million for 2005-06. The forecast decrease in income tax equivalents for 2005-06 is due to lower profitability forecast associated with higher costs and restricted price growth for 2005-06 in comparison to 2004-05.

Table 7.2: Tax Equivalents

2004-05 Estimate

2005-06 Budget

$000 $000

Income Tax Equivalents from GBDs

Government Printing Office 115

NT Fleet 2 474 2 678

Data Centre Services 513 481

Darwin Bus Service 30 46

Northern Territory Treasury Corporation 7 152 6 974

Total Tax Equivalents from GBDs 10 169 10 294

Income Tax Equivalents from GOCs

Power and Water Corporation 15 497 12 941

Local Government Rates Equivalents from GBDs

Darwin Port Corporation 147 149

Local Government Rates Equivalents from GOCs

Power and Water Corporation 148 151

Total Tax Equivalents 25 961 23 535

Note: GBDs not shown paid no tax in 2004-05 and are not expected to in 2005-06.

Dividend Policy If the Treasurer is satisfied that a GBD or GOC has sufficient resources, it may be determined that the GBD or GOC is to pay a dividend to the Government. Generally, the Territory Government’s primary benchmark is an ordinary dividend of 50 per cent of after-tax profit. However, a dividend payout ratio of 50 per cent may not always be appropriate, particularly where:

• a GBD’s or GOC’s debt levels are unsustainable in the medium to long term;

• where a GBD or GOC has significant future capital expenditure needs; or

• the Government elects to receive a lesser amount due to CSO obligations.

The Board of a GOC is to declare the amount of a dividend on the shares of a GOC, but the shareholding Minister may direct the Board of a GOC to declare a special dividend.

Special dividends can be declared where there are sufficient resources to pay an extra amount. An example is the Northern Territory Treasury Corporation, which operates as the Government’s Central Financing Authority. The corporation generates its revenue from the positive margin between lending and borrowing activities. As the corporation does not need to retain profits to meet capital costs it is appropriate for it to pay a dividend of 100 per cent of after-tax profit.

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Dividends payable by GBDs are projected at $35.3 million in 2005-06, representing a decrease of $3.2 million from 2004-05.

PWC’s projected dividend in 2005-06 is $15.1 million which is 50 per cent of its net profit after tax. This profit level is reached after the payment by the Territory of the $53.9 million CSO to be paid in 2005-06, and a further $6 million provided by Government in the form of assets that will be owned by PWC.

Table 7.3: Dividends Payable to Government

2004-05 Estimate

2005-06 Budget

$000 $000

Dividends from GBDs

Data Centre Services 599 561

Government Printing Office 269 227

NT Fleet 2 886 3 125

Darwin Bus Service 35 54

Northern Territory Treasury Corporation 16 688 16 271

Total Dividends from GBDs 20 477 20 238

Dividend from GOC

Power and Water Corporation 18 080 15 097

Total Dividends to Government 38 557 35 335

Public Private Partnerships Public private partnerships (PPP) is a term used to describe a method of procuring Government infrastructure and associated services. PPPs create opportunities with the private sector for increasing investment in social and economic infrastructure and the Territory’s PPP policy framework, Territory Partnerships, defines the protocol for such commercial dealings between the public and private sectors.

Generally projects considered for PPP arrangements are those with significant whole of life costs (generally greater than $50 million in today’s dollars) and which are long term in nature (20 to 30 years). Usually a PPP project will be attractive to the private sector, where it presents a viable commercial business opportunity. A commercial opportunity is more likely to be created where third party revenues are available (such as from road tolls on a roadway) or where economies of scale can be achieved in construction and ongoing maintenance (such as with a group of schools).

From the Government’s perspective, value for money will be achieved where private sector experience and expertise in delivery of the project exists and there is an environment of competitive tension to deliver the best outcome for Government. To achieve this, a PPP requires a rigorous and structured project development and evaluation process which assists in allocation of risks to the party best able to manage them. With these elements present, the bidding process will help ensure that efficient and optimal risk transfer occurs at realistic cost and that service delivery and innovation is maximised.

The Territory formally released its Territory Partnerships framework in April 2004. In line with a move by all governments in Australia towards uniform policy in this area, the policy is largely based on the policies of both the Victorian and New South Wales governments. The Territory Partnerships framework is premised on:

• the primary decision-making criteria as to whether to pursue a PPP being value for money and whether the project is considered to be in the public interest;

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• all potential PPP projects require development of a public sector cost benchmark or comparator;

• projects of sufficient scale ($50 million net present value whole of life costs would normally be the minimum size) and duration;

• projects with capacity for optimal risk allocation between the public and private sectors;

• projects which allow scope for innovative solutions from the private sector;

• projects which provide a genuine business opportunity for the private sector; and

• projects which foster a competitive bidding environment.

In progressing a uniform Australia-wide approach to PPPs, the Territory is represented on a National Ministerial Forum which focuses on fostering and promoting a national PPP market.

The Territory’s first project under the Territory Partnerships framework is the Darwin City Waterfront Redevelopment project. This project involves the redevelopment of some 25 hectares of waterfront land in Darwin and the construction and long-term operation of the Darwin Convention and Exhibition Centre, as well as residential and commercial components.

Darwin City Waterfront Redevelopment Project The Darwin City Waterfront Redevelopment project is a significant initiative developed by the Northern Territory Government under its Territory Partnerships policy for public private partnerships. This project will combine substantial community infrastructure, the Darwin Convention and Exhibition Centre (DCEC), a serviced hotel and residential accommodation. It will be linked to Darwin’s central business district via the Avenue of Honour and will provide economic opportunities as well as recreational and social opportunities for Territorians and visitors to the Top End. The Territory Government’s financial contribution for the community infrastructure and the DCEC through a public private partnership has resulted in a $1.1 billion project that will deliver long term economic and social benefits to the Northern Territory.

The Northern Territory Government called for expressions of interest for the redevelopment of the Darwin City Waterfront site owned by the Territory in September 2003. Eleven expressions of interest were received and three consortia were short-listed to respond to a call for detailed proposals document that sought the redevelopment of the site, with the construction and operation of the DCEC as the centerpiece of Stage 1 of the redevelopment. Public Infrastructure and commercial and residential developments were also expected as part of the redevelopment.

The Darwin Cove Consortium was selected as the preferred proponent for the redevelopment in September 2004. The Territory is currently finalising negotiations for the associated commercial relationship with the consortium. Given that the commercial relationship is still being finalised at the time of printing of these budget papers, the explanation of the proposed transaction is necessarily high level as many matters are commercial-in-confidence. The Consortium comprises ABN AMRO Australia Limited, the Sitzler Bros Barclay Mowlem joint venture, MacMahons NT, and Toga Pty Ltd.

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The transaction is expected to involve the following key elements:

(1) Darwin Convention and Exhibition Centre • The DCEC will be constructed during Stage 1 of the redevelopment and be

completed by April 2008 although an earlier construction completion is being targeted. The DCEC will be delivered through a public private partnership arrangement.

• The consortium will finance, design, construct, provide ongoing maintenance and operate the DCEC for 25 years with the Sitzler Bros Barclay Mowlem joint venture constructing the DCEC and taking design and construction risk. Honeywell Inc is proposed to maintain the DCEC for 25 years and Ogden Australia Pty Ltd is proposed as the convention centre operator.

• The transaction is structured such that the consortium owns the convention centre with ownership of the DCEC transferring back to the Territory after 25 years. The owners and operators of the DCEC will be incentivised to attract international and national delegates.

• The Territory will make payments over 25 years for the DCEC that include capital, maintenance, operating cost and incentive based components. The operating arrangements will be reviewed on an annual basis to take into account actual performance. In particular, incentives are built into payments so that both the DCEC owner and operator are incentivised to maximize the growth in convention delegate numbers. As such, annual payments will be adjusted accordingly.

• Payments can be abated or suspended if the DCEC is not maintained to appropriate standards or the consortium is in breach of its obligations.

(2) Community Infrastructure • The community infrastructure includes a seawall, extensive boardwalks, children’s

playground, swimming facilities, wave pool, a new cruise ship terminal at Fort Hill Wharf and an Avenue of Honour that connects Darwin’s Central Business District to the Darwin Cove facilities.

• The community infrastructure will be delivered by MacMahons NT and is anticipated to be commenced soon after financial close is reached and be completed around April 2007.

• The Consortium will design and construct the community infrastructure with the MacMahons NT joint venture taking on design and construction risk. The Territory’s payments will be staged, in line with the planning and construction timetable. Ownership of the community infrastructure will transfer to the Territory on completion.

• The Territory will establish an authority to manage the overall site including the community infrastructure.

(3) Property Development • The Consortium will develop the commercial aspects of the site over time and in

accordance with market demand. The arrangements will ensure that Stage 1 of the property development will be delivered shortly after the Convention Centre is complete, and include an apartment hotel to complement the DCEC and approximately 138 residential units and commercial and retail space.

• The remaining property development stages (total of approximately 1400 apartments for both stages) will be delivered over time in accordance with market demand. It is expected that the full development of the site will occur over 15 years.

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• The Consortium will also be responsible for providing community infrastructure to the remaining property development stages.

Financial Implications The redevelopment of the 25 hectare site has an estimated value upon completion of $1.1 billion. The majority of the construction costs will be invested by the Darwin Cove Consortium.

The Territory has responsibility for making operational payments for the DCEC over 25 years and the stage 1 community infrastructure. The Territory will share in the property returns from the development of all stages as they occur. The Territory decided to share in the increasing uplift in the value of its land over time as the property is developed rather than selling the unimproved land to the consortium.

As set out in the Territory Partnerships policy, before proceeding with these arrangements with the private sector, the Territory undertook a detailed appraisal of the project including an estimate of those elements of the project for which it would assume financial responsibility. This is known as the establishment of a “public sector comparator”. This analysis showed that a significantly better financial outcome would be achieved for the Territory through an arrangement with the private sector. This comparison does not take into account the related economic benefits that the project will deliver through direct investment by the Consortium, over and above the benefits associated with the Territory’s own financial investment.

The Territory is likely to make some payments at the completion of the construction of the DCEC and will then make payments over 25 years to the consortium. These payments are for the DCEC’s capital cost and its maintenance and operation. Payments can be withheld should the DCEC not be maintained to appropriate standards.

The Territory will also make payments during the 25 years of DCEC operations to reward the DCEC owners and operators for attracting national and international delegates.

The Territory will also receive revenue as the site is developed by the consortium. The Territory will share in the gross sale proceeds of the residential and associated commercial elements of the redevelopment which means that the Territory will share in the ongoing increase in land values at the site as it is developed.

There are some risks in relation to the Darwin City Waterfront Redevelopment project that may result in payments being made by the Territory. These risks relate to discriminatory changes in law, native title and environmental clean-up costs. The amount of these risks is unable to be estimated accurately but provision has been made in the forward estimates for environmental clean up costs and it is within the Territory's discretion whether to make a discriminatory change in law. In addition, the Territory will undertake works to improve the road system to the site through the Territory’s capital works program.

The Territory’s contribution to this project is best described in net present cost terms (today’s dollars) that takes account of the contributions to be made by the Territory during the construction of the community infrastructure and after the completion of the DCEC, as well as taking account of the future revenue streams expected to be received by the Territory as the consortium fully develops the Darwin City Waterfront site. The revenues to be received from sharing in the property development gross sale proceeds will partly offset the Territory’s

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contribution to the development of the community infrastructure and the construction, operation and maintenance of the DCEC.

As at the time of printing of these budget papers some of the contractual arrangements are yet to be finalised, and the forecasts contained in the budget are based on the best estimate able to be made of the arrangements that may be agreed. At a minimum, the financial forecasts will differ due to interest rates that will be applied at financial close and the final outcome of negotiations. At the time of printing these budget papers, it is not expected that these differences will be material in the context of the overall size of the project.

Commercial Risks in Relation to the Budget This section outlines risk issues that relate to formulation of the Budget and the performance of the public sector against the Budget. All forecasts are subject to a degree of risk and therefore some risk attaches to the Budget and forward estimates.

The Budget and forward estimates have been developed based on a range of factors about which consensus exists at the time the Budget is framed. However, events occurring after the Budget has been tabled may affect actual budget outcomes in current and future years.

In addition to changes in economic or other parameters, such as inflation rates, interest rates and exchange rates, factors which may affect the Budget outcome result from the commercial relationships and dealings between the Territory Government and other governments or the private sector. These encompass matters such as the exclusion of certain items from forecasts because of uncertainty about timing, and possible crystallisation of contingent liabilities.

In any discussion about the Budget, it is important to consider that the largest source of revenue for the Territory Government is Goods and Services Tax (GST) revenue paid by the Australian Government. While it is expected that national GST collections will grow over time, the revenue base is subject to significant volatility. Additionally, the recommendations of the Commonwealth Grants Commission are of greater importance to the Territory than to other jurisdictions because of the Territory’s greater reliance on GST revenue, and they therefore pose greater risks to the Territory than to other jurisdictions. Further discussion on the risks to GST revenue estimates is provided in Chapter 5 of this Budget Paper.

Contingent Liabilities A contingent liability is a liability that the Government may be called on to meet at some future date if a specified event should occur. Contingent liabilities of the Territory may arise out of a range of circumstances, the most common of which are indemnities and guarantees contained in agreements executed by the Territory. Contingent liabilities may also arise as a result of undertakings made by the Territory or as a result of legislation containing a guarantee or indemnity.

Details of estimated amounts of material contingent liabilities at 30 June 2004 resulting from guarantees or indemnities granted by the Territory are presented in Table 7.4.

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Table 7.4: Material Quantifiable Contingent Liabilities

Estimated Quantifiable Contingent Liability at 30 June 2004

$M NPV1

Amadeus Basin to Darwin Gas Pipeline 261

Pine Creek/McArthur River Electricity Purchase Agreements 101

Public Trustee Common Fund 26

1 Future values discounted at a nominal 7 per cent discount rate.

Material contingent liabilities of the Territory cover guarantees and indemnities of the Territory and are disclosed in annual financial statements of the Territory in accordance with Australian Accounting Standards requirements. Quantifiable and unquantifiable contingent liabilities of the Territory are outlined briefly below.

Quantifiable Contingent Liabilities

Electricity, Gas and Water Supply These contingent liabilities result from arrangements for the purchase and transportation of gas, and the purchase and sale of electricity by and for PWC. Material contingent liabilities relating to these arrangements are reported below.

PWC has been a government owned corporation (GOC) since 1 July 2002. Under the Government Owned Corporations Act, a GOC is not within the shield of the Crown and the obligations of a GOC are not guaranteed by the Territory except where the Treasurer specifically agrees to this. The following Territory commitments were given prior to PWC (formerly Power and Water Authority) becoming a GOC and will remain in place until the relevant contractual arrangements cease.

Amadeus Basin to Darwin Gas Pipeline The Territory indemnified the company which constructed the natural gas pipeline from the Amadeus Basin to Darwin in support of obligations of PWC to the company. The Territory also supported the corporation’s financing obligations to the pipeline company and its financiers. Should this facility be terminated prior to the end of the contract term, the Territory undertook to stand behind and, if necessary, underwrite the refinancing of the outstanding facility amount including a lease residual due to be paid at the end of the facility term. The lease residual at the end of the contract term is a direct contingent liability of the Territory unrelated to any obligation of PWC.

The Territory guaranteed gas producers in support of the obligations of a subsidiary company of PWC under gas purchase contracts and provided a letter in support of a loan to the corporation’s subsidiary company used to meet the company’s development obligations under a gas purchase agreement.

In the event that PWC experienced a significant decline in its sales of electricity, there is a risk that the corporation may have a lesser requirement for natural gas to be delivered through the Amadeus Basin to Darwin gas pipeline. In circumstances where the decline was severe, both gas purchase contracts and the pipeline financing arrangements could present a risk to the corporation and the Territory, as there would be ongoing payments made despite reduced need for delivered gas. This situation is considered highly improbable.

On the other hand, there is a risk that contracted supplies of gas will prove inadequate to meet the fuel needs for a public electricity supply. Although most installed capacity that generates electricity for public supply can use alternative liquid fuels, there is presently a very significant price differential between gas and

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liquid fuels at all locations where gas can be delivered through existing infrastructure.

PWC has advised that it expects to be able to meet its needs and those of the public electricity market for at least the next five years. Within this timeframe, the corporation is planning to contract for additional gas supplies, most likely from one of the gas fields located in waters adjacent to the Top End of the Territory. Risks related to gas supply shortfall are not associated with guarantees or indemnities in contracts, as they relate to situations where existing contracts cannot meet PWC’s needs.

Electricity and Gas Supply to Pine Creek and McArthur River PWC has entered into agreements for the provision of gas and wholesale supply of electricity for the supply of power to the Pine Creek region and McArthur River Mine. The agreement for the supply of gas contains three indemnities relating to PWC supplying non-conforming gas. PWC’s contingent liability is unquantifiable. However, a major portion of the value of the contingent liability is the cost of overhauling turbine machinery owned by the electricity producers, where damage has been caused by the provision of non-conforming gas. Since 5 March 2003, no gas has been supplied to the power stations, significantly reducing, but not entirely removing, the risk exposure.

Under PWC’s current operating practices, the contingent events relating to each of the above indemnities are within the corporation’s control and are expected to be easily avoidable.

In relation to the electricity purchase agreements, the Territory has provided an indemnity against possible actions of the Territory in relation to the structure or operations of PWC. The Territory’s maximum exposure is equivalent to the net present value of lease and operating charges under the purchase agreements. This risk is within the Territory’s control.

Transport Contingent liabilities in this category relate to indemnities and guarantees that have been provided in support of the Adelaide to Darwin railway project.

The AustralAsia Railway Corporation (AARC) and the Northern Territory and South Australian governments have entered into a concession arrangement for the Adelaide to Darwin railway on a build, own, operate and transfer-back basis.

Quantifiable contingent liabilities of the Territory identified in previous years in relation to the project arose from commitments to provide a capped amount of $25 million in contingent equity, of which 50 per cent will be provided by the Commonwealth. The equity will be fully called and paid before 30 June 2005.

Unquantifiable Contingent Liabilities Unquantifiable contingent liabilities exist which could pose a risk to the Government’s financial projections.

Transport Unquantifiable contingent liabilities of the Territory in relation to the Adelaide to Darwin railway project relate to the following:

• joint guarantee of the obligations of the AARC;

• indemnities granted in relation to title over the railway corridor (title is secure but the indemnity continues);

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• agreement to compensate in the case of early termination of the project (where a termination event is caused by the Territory); and

• indemnities in favour of the Commonwealth for the Commonwealth’s financial contribution.

The Darwin Port Corporation has leased to Asia Pacific Transport Pty Ltd facilities at the East Arm port, interfacing the port and the railway. There are contingent liabilities which arise out of the performance of the facilities.

Although the majority of contingent liabilities arising from the above guarantees and indemnities are unquantifiable, AARC and the governments have comprehensive risk management procedures in place for all events that would give rise to liabilities.

The Northern Territory Government has entered into agreements for the relocation of fuel terminals currently located near the Darwin CBD. The agreements provide for certain unquantifiable contingent liabilities to be provided to the developer of the new fuel terminal and an oil company. Government has put in place comprehensive risk management processes to address potential exposure.

Health and Community Services The Territory has granted a series of health-related indemnities for various purposes including indemnities to specialist medical practitioners employed or undertaking work in public hospitals and indemnities provided to medical professionals requested to give expert advice on inquiries before the Medical Board. Indemnities have also previously been granted to midwives.

Although the risks associated with health indemnities are potentially high, the beneficiaries of the indemnities are highly trained and qualified professionals. The indemnities generally cannot be called upon where there is wilful or gross misconduct on the part of the beneficiary.

Government Administration Where the Territory has invited the participation of private sector persons and Government officers on Boards of government owned or funded companies or corporations, the Territory may grant an indemnity to board members, which covers them for any losses that may result from good faith actions. This indemnity is generally consistent with the cover available through directors’ and officers’ insurance and the policy of issuing an indemnity rather than purchasing commercial insurance is in line with the Government’s policy of self insurance.

The resulting contingent liabilities are considered low risk as Board members are professionals selected on the basis of their expertise and knowledge. Further, the indemnities are restricted to good faith actions only.

Indemnities are granted to the Australian Government and other entities involved in funding or sponsoring activities and programs initiated or undertaken by the Territory. Under the indemnities, the Government generally accepts liability for damage or losses occurring as a result of the activities or programs and acknowledges that, while the Australian Government or another party has contributed financially or provided in-kind support, the Territory is ultimately liable for the consequences of the activity or program.

Although the resulting contingent liability may not always be low risk, depending on the activity undertaken, the Territory’s financial exposure is no greater than would have been the case without funding or sponsorship assistance.

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The Government has indemnified private sector insurers who provide workers’ compensation insurance in the Territory. The indemnity covers insurers for losses which may arise as a result of acts of terrorism. It is considered unlikely that the indemnity will be called, notwithstanding that the consequence in terms of financial exposure, should the indemnity be called, is potentially significant.

The Territory Government also generally self insures its insurable risk. The size of the Government budget, coupled with the spread of risk, the small size and high degree of centralisation of Government activities, have been considerations in determining that self insurance is appropriate. Government’s primary exposure is to natural disaster risks that are outside Government control, for example, cyclones. In previous years, where catastrophic natural disasters result in major loss, the Australian Government has provided assistance, even beyond the terms of the Natural Disaster Relief Arrangements. Given recent cyclones that have affected parts of the Territory, the Territory has already applied to the Australian Government for assistance under the Natural Disaster Relief Arrangements.

Finance The Territory’s financial management framework is underpinned by centralised banking arrangements. The sole provider of banking-related services has been granted indemnities under the whole of government banking contract. These indemnities are considered not to involve significant risk.

Property and Business Services Agreements for leases or licences of property, plant or equipment generally contain standard indemnity provisions covering the lessor or licensor for any losses suffered as a result of the lease or licence arrangement. These indemnities are considered not to involve significant risk.

Potential contingent liabilities arising from the Darwin City Waterfront Redevelopment project are covered above.

Statutory Contingent Liabilities A number of statutory contingent liabilities also exist, however, the prospect of these contingent liabilities being called upon is considered negligible.

Public Trustee Act Under section 97 of the Public Trustee Act, the Treasurer indemnifies the Common Funds against any deficiencies in money available to meet claims on it. The Common Funds are a repository for all moneys received by the Public Trustee on behalf of estates, trusts or persons, and earns interest. Money to the credit of the Common Funds is invested according to the directions issued by an Investment Board.

Territory Insurance Office Act In previous years, a contingent liability related to the Government’s potential exposure under section 30(1) of the Territory Insurance Office Act has been reported. Section 30(1) provides that the Territory guarantees every policy or contract of insurance or indemnity, and the repayment of, and the interest payable on, each deposit with the Territory Insurance Office in pursuance of a contract or other agreement. Government support is in respect of actual liabilities of the Territory Insurance Office. As this entity is a controlled entity of the Territory Government, the actual liabilities are included in the relevant Uniform Presentation Framework consolidated sectoral financial statements (see Chapter 9 in this Budget Paper) and a contingent liability is no longer separately reported.

92

Commercial Issues

Negotiations Not Yet Finalised Negotiations not yet finalised have the capacity to influence the achievement of budget projections and have the potential to affect both revenue and expenses, as well as the Statement of Financial Position.

However, as indicated above, the Budget and forward estimates have been developed based on a range of factors about which consensus exists at the time the Budget is framed.

Legal Proceedings Like negotiations not yet finalised, the outcome of legal proceedings brought by and against the Government also have the potential to affect actual Budget outcomes in current and future years. The Budget and forward estimates have been developed based on consensus existing at the time the Budget is framed.

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Chapter 8

Economy Overview Structure of the Economy

The structure of the Northern Territory economy is markedly different to other Australian jurisdictions, reflecting its abundance of natural resources, its comparatively large public sector and the importance of the large defence presence.

A relatively large mineral and energy sector means that the Territory economy is capable of high growth as resources are developed. This, in conjunction with a high reliance on tourism, particularly international, contributes to an economy that has significant exposure to the world economic cycle. In the Territory, this is exacerbated by the relatively small size and narrow base of the economy.

A key driver of structural change in the Territory economy was the increase in defence personnel over the 1990s, leading to a major cycle in economic activity and a construction boom, followed by a downturn in the early years of this decade.

Construction of the Adelaide to Darwin rail link and the liquefied natural gas (LNG) plant at Wickham Point has boosted onshore economic activity over the past few years. Significant infrastructure and resource investment will continue in coming years, which will act to broaden the economy in key industries such as manufacturing and services.

Manufacturing and mining output will increase as the LNG plant at Wickham Point commences production in 2006 and as bauxite processing capacity expands at Alcan’s Gove alumina plant.

Economic Growth Economic growth in the Northern Territory tends to be volatile from year to year. The small size of the economy means large, typically resource-based projects can have a substantial impact on investment and income streams.

During the mid to late 1990s, the impetus provided by the defence relocation program led to increased population growth, strong demand for labour and a construction boom. As the stimulus from the defence force program eased back, growth began to weaken, with Gross State Product (GSP) declining in 1999-00.

In 2000-01 and 2001-02, GSP was boosted by significant increases in offshore oil production which acted to mask the weakness in the onshore economy. In 2002-03 and 2003-04, offshore oil production declined significantly, more than offsetting the strengthening in the onshore economy.

The major influence on estimated GSP growth of 7.3 per cent in 2004-05 is strong onshore activity, with work on major projects leading to strong income growth.

Economic growth is forecast at 6.2 per cent in 2005-06. The commencement of LNG production and peak production at the Bayu-Undan gas and condensate fields are the major contributors to growth.

Table 8.1: Summary of Territory Economic Indicators Year on Year Percentage Change 2000-01 2001-02 2002-03 2003-04

Estimate 2004-05

Forecast 2005-06

Real GSP 5.7 2.3 0.2 0.4 7.3 6.2

Employment 1.1 5.4 -0.1 -2.2 -1.3 2.0

Population1 1.0 0.9 0.1 0.4 1.2 1.1

Darwin CPI2 3.9 3.6 2.2 2.1 1.6 2.0

1 Based on middle of the financial year, December estimates, annual percentage change. 2 Based on middle of the financial year, December estimates, year on year percentage change.

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Economy Overview

Table 8.2: Territory Economic Growth Profile

Period GSP (A% Ch) Comment

Five years 1995-2000

4.1 per cent Strong growth phase, associated with impetus from defence force relocation program. High population growth, strong demand for housing and other economic and social infrastructure. Construction boom.

2000-01 5.7 per cent Weak onshore activity. Headline GSP boosted by offshore oil production. Falling retail sales, rising unemployment rate. Major net interstate migration outflow.

2001-02 2.3 per cent Pick up in onshore activity. Recovery in consumption. Rail-related investment surge boosting construction and property and business services. Stronger defence-related output, partially offset by a fallback in offshore oil production. Weak population growth and the setback to tourism.

2002-03 0.2 per cent Sharp fall in offshore oil production major influence on weak headline result. Onshore economic performance mixed. Consumption strengthened and business investment at a high level. Further weakening in population growth. Employment fell and further tourism shocks.

2003-04 0.4 per cent Offshore oil production continues to fall. Recovery in onshore economy gains momentum, boosted by strong construction activity. Employment and population growth weak, but start to recover. Continued weak tourism activity.

2004-05 7.3 per cent (e) Onshore recovery broadens. Strengthening in construction, mining and tourism. Private consumption growth moderates. Business investment falls, but greater level of local value-adding. Population growth continues to recover. Skills shortages lead to increased fly-in fly-out employment. Resident employment reported as declining.

2005-06 6.2 per cent (f) Construction of major projects continues, and liquefied natural gas production commences. Population growth supports solid residential construction activity. Waterfront project proceeds. Recovery in tourism continues. Employment growth.

e: estimate; f: forecast.

Source: NT Treasury, ABS Cat. No. 5220.0.

Chart 8.1: Territory State Final Demand and GSP (chain volume, annual percentage change)


Source: NT Treasury, ABS Cat. No. 5206.0, 5220.0.

96

Economy Overview

Population Population growth is a key driver of Territory economic growth. Population growth occurs through natural increase and interstate and overseas migration.

The Territory has a history of strong population growth, with 4 to 5 per cent annual growth in the early 1980s, 1 to 2 per cent in the late 1980s and early 1990s, and 2 per cent during the late 1990s.

Except for the period during the defence relocation to the north, the Territory has typically experienced negative net interstate migration.

Completion of the main defence force build up in the Top End saw growth decline to 0.9 per cent in 2001 and to 0.1 per cent in 2002, before beginning to recover in 2003.

There was weak population growth of 0.4 per cent in 2003, the major influence being a net interstate migration outflow of 2895 people.

In recent years, interstate migration patterns indicate that annual outflows have remained relatively stable at 17 000 to 18 000, with inflows declining steadily from 1997 to 2002, from a peak of more than 18 000 to less than 16 000. Inflows continued to recover in 2004.

Treasury estimates that Territory population growth will continue to strengthen, with growth of 1.2 per cent in 2004, and forecasts 1.1 per cent growth in 2005, easing to around 1.0 per cent in 2006.

As the Territory’s population ages into the future, the proportion which is of working age (15-64 years) is likely to increase. Looking forward, nationally, the proportion of the population of working age is expected to decline.

Chart 8.2: Annual Population Growth Rates

f: forecast.

source: NT Treasury, ABS Cat. No. 3101.0.

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Economy Overview

Employment The Territory’s resident workforce of around 100 000 people is typically young, mobile and transient, and includes about 8000 Indigenous participants in the Community Development Employment Projects (CDEP) program. In addition, there are more than 5500 defence force personnel resident in the Territory and significant numbers of interstate-based fly-in fly-out workers that are not included in workforce estimates in the ABS labour force statistics.

The Territory’s labour force relies on large interstate migration flows to overcome skills shortages to meet the short to medium term employment demands of major infrastructure projects.

For a variety of reasons, Northern Territory labour force data are characterised by month-to-month, and year to year volatility. As such, analysis and interpretation of available data can be difficult.

Despite stronger activity in key employment industries, based on ABS data, resident employment is estimated to decline by 1.3 per cent in 2004-05.

Employment is forecast to increase by 2 per cent in 2005-06. Major projects such as the Alcan alumina plant expansion at Gove and the Trans-Territory Pipeline, the Darwin City Waterfront Redevelopment project and solid residential construction activity will be contributors to growth.

Stronger prospects for the tourism sector and the cyclical upswing in the economy will support jobs growth. An anticipated shortage of locally based skills is likely to constrain ABS-reported resident employment growth, with increased fly-in fly-out employment on major projects.

Chart 8.3: Labour Force Growth (moving annual average, annual percentage change)

Source: ABS Cat. No. 6202.0.

98

Economy Overview

Prices and Wages Over the past couple of years, the appreciation of the Australian dollar has helped keep inflation within the Reserve Bank of Australia’s target range of between 2 and 3 per cent over the business cycle.

The downward impact on consumer price inflation of the exchange rate appreciation has now passed and, assuming a relatively stable exchange rate looking forward, changes in import prices will more readily flow through to consumer prices and put upward pressure on inflation.

Nationally, year-on-year growth in the Consumer Price Index (CPI) is expected to remain at 2.4 per cent in the June quarter 2005.

In the Territory, upward wage and price pressures are expected to result in CPI growth for Darwin increasing from an estimated 1.4 per cent in the year to June 2004 to 2.0 per cent in the year to June 2005.

Based on CPI and other data, the relative difference in consumer prices between Darwin and the other Australian capitals continues to narrow.

Further, continued strong domestic demand, together with supply and capacity constraints in some industries, the tightening in the labour market in industries such as construction and the likely impact on wages growth and the significant pick up in domestic producer prices, suggest that inflationary pressures are likely to strengthen in the short term.

In the Territory, year-on-year inflation to June 2006 is forecast to increase to 2.3 per cent in 2005-06, compared to 2.6 per cent nationally.

For Budget purposes, the CPI to December is used for the relevant year.

Chart 8.4: Consumer Price Index



99

Economy Overview

External Economic Environment Overseas export demand constitutes almost 20 per cent of Territory final demand, while demand from other Australian states and territories is estimated at more than 12 per cent.

The significance of the mining and tourism industries makes the Territory economy particularly reliant on exports and susceptible to developments in key export markets.

Indirect trade links between the Territory and the United States are critical for the Territory’s export demand. Many of the Territory’s primary products are used in manufacturing production in Asia, for subsequent export to the US and other nations. It is through these demand linkages that economic conditions in the major growth centres of the world can affect the Territory economy.

The global economy grew strongly in 2004, led by the United States and China.

Global growth has been supported by expansionary monetary and fiscal policy settings in many of the world’s major economies.

Despite subdued export growth, the Australian economy has maintained a solid pace of growth in recent years supported by strong domestic demand.

Nationally and globally, growth is expected to moderate in 2005, potentially leading to lower demand for Territory exports, including tourism-related services exports.

Table 8.3: Australian and Overseas Real GDP Growth Forecasts (percentage change, calendar year)

1999 2000 2001 2002 2003 2004 2005f 2006f

United States 4.4 3.7 0.8 1.9 3.0 4.4 3.5 3.4

Japan 0.2 2.8 0.4 -0.5 2.5 2.9 1.1 1.8

China 7.1 8.0 7.3 8.2 9.3 9.5 8.4 7.8

European Union1 2.9 3.7 1.8 1.2 1.1 2.3 2.0 2.2

Australia 4.3 3.2 2.5 4.0 3.3 3.5 3.1 3.4

Hong Kong 3.4 10.2 0.5 1.9 3.2 7.8 4.7 4.5

Indonesia 0.8 4.9 3.8 4.3 4.5 4.9 5.2 5.5

Malaysia 6.1 8.9 0.3 4.1 5.3 7.1 5.3 5.5

New Zealand 4.0 3.8 2.6 4.7 3.4 4.8 2.5 2.8

Philippines 3.4 4.4 3.4 5.5 4.9 6.1 4.6 4.5

Singapore 6.9 9.7 -1.9 2.2 1.1 8.1 4.2 4.8

South Korea 9.5 8.5 3.8 7.0 3.1 4.7 3.9 4.7

Taiwan 5.4 5.9 -2.2 3.9 3.3 5.9 4.2 4.3

Thailand 4.4 4.8 2.2 5.3 6.9 6.1 5.3 5.4

1 Prior to May 2004, the European Union comprised Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. From 1 May 2004, the European Union includes 10 new member states, primarily from Eastern Europe.

f: forecast.

Source: Consensus Economics, IMF.

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Economy Overview

International Trade Mineral and energy commodities dominate Northern Territory international merchandise exports, while tourism-related activities are the major international services exports.

Refined fuels, manufactured goods and machinery and equipment make up the majority of international imports. Significant levels of international imports enter the Territory via other states and are therefore classified as interstate imports.

Oil production has had a significant impact on Territory export levels since the Laminaria-Corallina fields commenced operation in 1999-2000.

Territory exports are estimated to fall marginally in 2004-05 as declining oil production is largely offset by higher oil prices. Imports are forecast to increase significantly as material for the liquefied natural gas (LNG) plant and fuel tank facility enter the Territory and significant aircraft imports are attributed to the Territory.

In 2005-06, exports are forecast to increase by 4 per cent as LNG production late in the period more than offsets the continuing decline in oil production. Imports are forecast to increase marginally, and remain at a high level, as work on major projects continues.

Over time, the operational phase of the Adelaide to Darwin railway is expected to generate increased international trade opportunities. Landbridge trials are continuing, and by 2007 it is anticipated that 50 000 containers of international freight will be moved by rail through the East Arm Port.

Chart 8.5: Territory International Merchandise Trade


Source: NT Treasury, ABS data service 5432.0.65.001.

101

Economy Overview

Mining and Energy In terms of output, mining is the largest industry in the Territory, accounting for 18.8 per cent of GSP in 2003-04, compared to 4 per cent nationally.

Like most commodity-based industries, mining output is volatile. Global supply and demand conditions and the impact of exchange rate movements on competitiveness are key factors affecting production and income. Output can also jump markedly as new projects commence production.

The Territory produces a diverse range of mineral products, most notably oil, bauxite, manganese, lead/zinc and uranium.

Output has been dominated in recent years by oil production from the Laminaria-Corallina oilfields in the Timor Sea.

For developments in the Joint Petroleum Development Area in the Timor Sea, half the production will be attributed to the Northern Territory for national accounts purposes.

The delivery of gas onshore will continue to create significant opportunities for the Territory economy, particularly gas-related manufacturing of LNG and helium and for electricity generation at Gove and for the Territory electricity grid.

In the short term, strengthening global demand is expected to lead to increased demand for minerals, although increased supply globally is expected to result in price falls for many Territory-produced minerals.

Chart 8.6: Mineral and Energy Production and Processing

*Includes 50 per cent of production in the Joint Petroleum Development Area, and LNG manufacturing production.


Source: NT Treasury, Department of Business, Industry and Resource Development.

102

Economy Overview

Tourism During the 1990s, the Territory’s tourism sector expanded considerably, driven by solid growth in international visitor numbers which increased at an average rate of around 13 per cent a year.

In the period 2001 to 2004, international discretionary travel declined as weaker global economic conditions were exacerbated by terrorist attacks, geopolitical uncertainty and the Severe Acute Respiratory Syndrome (SARS) outbreak. Over the past year, the appreciation of the Australian dollar has also acted to constrain the pickup in international visitors to Australia.

In the Territory, after four years of negative growth, visitor numbers are estimated to have increased by around 8 per cent (to 1.65 million) in 2004-05 with growth of 5 per cent (to 1.74 million) expected in 2005-06. International visitor numbers are expected to rebound by 24 per cent in 2004-05 and by a further 9 per cent in 2005-06.

The Northern Territory Tourist Commission estimates that total expenditure by tourists to the Territory increased by 7.5 per cent to $1161 million in 2003-04, of which international visitors accounted for 26 per cent.

Stronger demand for the Ghan passenger train service has led to a second weekly return service to Darwin during the peak season in 2005.

The appreciation of the Australian dollar is a major risk to the outlook. A strong dollar will act to constrain the strength of the upswing in international visitors while encouraging Australians to travel abroad.

Chart 8.7: Visitor Numbers


Source: NT Treasury, Northern Territory Tourist Commission.

103

Economy Overview

Rural Industries and Fisheries Rural industries in the Territory comprise cattle and other livestock (buffalo, crocodiles, poultry, pigs and camels), horticulture (fruit, vegetables, nursery and cut flowers) and mixed farming (field crops, hay and seeds, and forestry). The fisheries industry comprises harvesting of wild catch and aquaculture.

The Territory enjoys certain comparative advantages due to its capacity to supply markets with a range of early-season and out-of-season produce, and benefits from its ‘clean’ image.

Output growth in the industry tends to be volatile due to variable weather conditions, while the exchange rate can have a significant effect on international demand. In the Territory, average annual output growth has been below broader economic growth over the past 10 years.

Rural industries accounted for 2.9 per cent of Territory GSP in 2003-04, in line with the national proportion.

The value of rural industries production was estimated at $490 million in 2004-05, an increase of 5 per cent from 2003-04.

The value of production is forecast to increase by 7 per cent to $524 million in 2005-06.

Chart 8.8: Rural Industries and Fisheries Value of Production

e: estimate, f: forecast.

Source: Department of Business, Industry and Resource Development.

104

Economy Overview

Construction In the Territory, the construction industry accounted for 5.9 per cent of GSP on average during the past five years, and employed almost 7.2 per cent of the workforce.

Construction activity slowed markedly in the period immediately following the major defence force relocation to the Top End, as economic and population growth weakened.

Although starting to improve, residential and non-residential building and property markets were relatively weak in the early years of the decade. Property markets have strengthened markedly since 2004.

Major infrastructure projects such as construction of the Adelaide to Darwin railway line and work to develop the Bayu-Undan oil and gas project have kept engineering construction at record levels in recent years.

After increasing by around 16 per cent to $2 billion in 2003-04, the value of construction done is estimated to decrease by 8 per cent to $1.8 billion in 2004-05. Activity is coming off a high base. In 2003-04, activity was inflated by offshore expenditure attributed to the Territory for the Bayu-Undan stage 1 platforms and the stage 2 pipeline.

In 2005-06, the value of construction work done is forecast to increase by 9 per cent to $2 billion. Construction will again be underpinned by engineering work for major projects, but will be supported by strengthening residential and non-residential building activity associated with recovering population growth in the Darwin region.

Chart 8.9: Territory Construction Work Done (moving annual total, 2002-03 dollars)


Source: NT Treasury, ABS Cat. Nos. 8752.0, 8762.0, 8782.0.65.001.

105

Economy Overview

Manufacturing Manufacturing currently represents a small proportion of Northern Territory output, averaging around 3.8 per cent of GSP over the past decade, compared to 11.3 per cent nationally.

Manufacturing in the Territory is narrowly based and is dominated by the metal products subdivision (primarily alumina production at Gove), which is typically around 60 per cent of manufacturing value added.

Construction of the Wickham Point LNG plant near Darwin is continuing, with production scheduled to start in 2006. LNG is defined as a manufactured product and will provide a significant boost to manufacturing output.

The expansion of the Alcan Gove alumina refinery is also currently under way, with alumina production planned to nearly double from 2007. Combined with the commencement of LNG production, Territory manufacturing will be boosted significantly (but narrowly) over the next few years.

In the medium to long term, natural gas extracted from the Timor Sea could be used as an input for gas-related manufacturing industries and a cheaper energy source, with the potential to significantly broaden the Territory’s economic base.

In the longer term, the new Adelaide to Darwin rail link has the potential to complement increased manufacturing activity in the Territory. Nonetheless, development of both local and export-oriented opportunities will depend on the cost effectiveness of manufacturing processes and transport links.

Chart 8.10: Territory Manufacturing Industry Selected Indicators (2002-03)

* Employment data is for 2000-01.


106

Economy Overview

Retail and Wholesale Retail and wholesale trade accounted for 7 per cent of Northern Territory Gross State Product (GSP) and 16 per cent of employed persons in 2003-04.

Compared to nationally, Territory consumers tend to spend more on food relative to other retail categories (in part due to the higher freight and storage costs), while relatively less is spent on recreational goods and clothing and footwear.

Retail turnover typically represents around 40 per cent of household consumption.

Population, employment and household disposable income growth are major determinants of retail trade growth. In the Territory, the significance of the tourism sector means the number of interstate and overseas visitors can also have a significant impact on retail turnover.

Following solid growth of 5.1 per cent in 2003-04, Territory real retail turnover growth is estimated to moderate to 3.5 per cent in 2004-05. After being adversely affected by the tourism downturn, hospitality and services retailing is estimated to contribute to turnover growth in 2004-05.

Territory retail turnover is forecast to increase by 5 per cent in 2005-06, supported by the improved outlook for employment and population growth and the strengthening tourism sector.

Over the short to medium term, interest rates and petrol prices will continue to play an important role in influencing discretionary disposable household income, consumer confidence, consumption expenditure and the pattern of retail activity. Interest rate increases and the flow through to household budgets and consumption are the major risks to the forecast.

Chart 8.11: Retail Turnover (year on year percentage change)



107

Economy Overview

Transport and Communication Darwin’s geographic location means it is strategically placed between Asian markets and Australia’s south eastern states.

With the completion of the Alice Springs to Darwin leg of the rail link to Adelaide and the new East Arm Port, Darwin has the infrastructure to be the regional transport and logistics hub.

Rail is now the dominant transport mode on the north-south freight route. Nonetheless, road and air transport will continue to service niche freight markets.

Access to sophisticated information and communications technology and increased coverage has facilitated improved and innovative service provision mechanisms in remote regions.

In the short to medium term, the major influence on the outlook for the transport sector is value-adding and trade opportunities associated with the new rail link and port.

Improvements in communications technology and coverage are expected to increase the scope and quality of public and private service provision, particularly in remote areas.

The Public Sector The public sector consists of the Australian, Territory and local governments and includes defence. It is a major contributor to the Northern Territory economy, providing a wide range of economic and social services.

In 2003-04, government administration and defence, and the other predominantly public sector industries (health and education), together accounted for more than 21 per cent of the GSP. About 34 per cent of Territory State Final Demand was attributable to public expenditure, of which 89 per cent was consumption related.

The proportion of public sector-related industries in Territory GSP continues to be well above the national average, in part because the cost of public sector service provision is relatively high in the Territory as a consequence of a small and widely dispersed population, compounded by higher average cost of servicing people in remote communities. These factors also contribute to fewer private sector providers.

The importance of the public sector in the Territory has not diminished in significance over the past decade, reflecting the defence build up and increases in local and Territory government employment (partially offset by reductions in other Commonwealth non-defence government employment).

There is expected to be modest growth in public sector employment in the Territory in coming years, due partly to increased defence personnel associated with greater defence functionality in the Top End and further service delivery initiatives flowing through to employment.

108

Economy Overview

Defence The defence presence in the Territory has more than doubled since the early 1990s, with the number of defence personnel and their families increasing from around 6200 in June 1992 to an estimated 13 000 at 30 June 2004.

Approximately 10 per cent of Australian defence force combat personnel are now based in the Territory.

Since 1995, when the Army relocation began in earnest, defence expenditure attributed to the Territory has increased at an average rate of 11 per cent per annum.

Major defence activities underway in the Territory include the relocation of the Army’s 1st Aviation Regiment which includes a $75 million building program at Robertson Barracks in Darwin, and construction of the $65 million Bradshaw Field Training Area near Timber Creek.

Some 200 defence personnel and their families are expected to relocate to Darwin with the 1st Aviation Regiment. The Defence Housing Authority (DHA) plans to invest around $70 million to develop the new suburb of Lyons (at Lee Point). Over the next five years this project will comprise around 300 new DHA homes and a further 350 allotments will be available for private development.

Territory-based support and maintenance for military hardware such as helicopters, tanks and patrol boats is expected to continue over coming years, fostering the development of local skills and business opportunities.

Chart 8.12: Defence Personnel Stationed in the Territory

f: forecast.

Source: NT Treasury, Department of Defence.

109

Chapter 9

Uniform Presentation Framework Under the Uniform Presentation Framework (UPF), jurisdictions have agreed to publish

information in a standard format in their budget papers. The format of the UPF is based

on the reporting standards of the Australian Bureau of Statistics’ Government Finance

Statistics (GFS). The UPF has been adopted by all governments to facilitate a better

understanding of governments’ budget papers and to provide a basis for meaningful

comparisons of each government’s financial results and projections.

The reporting requirements of the Fiscal Integrity and Transparency Act complement

those specified in the UPF Agreement. The Act requires that fiscal outlook reports be

prepared in accordance with external reporting standards that include the GFS.

The tables in this chapter meet the Territory’s reporting obligations under both the Fiscal

Integrity and Transparency Act and the UPF. They include an operating statement,

balance sheet and cash flow statement for each sector of government. Also included are

tables presenting general government sector expenses by function, general

government sector taxes and the revised 2005-06 Loan Council allocation.

The financial statements for the general government, public non financial corporations

and non financial public sectors include the revised 2004-05 estimate, 2005-06 Budget

and 2006-07 to 2008-09 forward estimates. The statements for the public financial

corporation sector present the 2004-05 estimate only, with the remaining tables

presenting both the 2004-05 estimate and the 2005-06 Budget.

In addition to the sectoral financial statements, a set of financial statements has been

provided for the total public sector for the 2004-05 estimate. Although this is not

required under the UPF, it provides an enhanced basis of comparison for the 2004-05

Treasurer’s Annual Financial Report, which will report the actual outcome for 2004-05.

111

Uniform Presentation Framework

Table 9.1

General Government Sector Operating Statement2004-05 2005-06 2006-07 2007-08 2008-09Estimate Budget Forward Estimates

$000 $000 $000 $000 $000REVENUE

Taxation revenue 294 940 299 790 305 628 304 875 310 039Current grants and subsidies 2 060 640 2 150 328 2 209 825 2 290 903 2 360 952Capital grants 75 498 67 202 68 549 70 124 71 080Sales of goods and services 103 621 97 602 99 444 100 303 102 034Interest income 18 441 16 215 16 323 16 437 16 559Other 123 957 120 761 120 445 121 378 118 611

TOTAL REVENUE 2 677 097 2 751 898 2 820 214 2 904 020 2 979 275

EXPENSESGross operating expenses 1 840 928 1 925 521 1 979 400 2 090 751 2 158 257

Depreciation 134 160 137 149 140 218 145 043 148 244Employee expenses 1 054 490 1 093 091 1 111 907 1 142 699 1 172 108Other operating expenses 652 278 695 281 727 275 803 009 837 905

Nominal superannuation interest expense

88 015 89 573 90 220 90 675 90 949

Other interest expenses 127 079 118 033 115 055 117 259 122 992Other property expenses Current transfers 525 787 520 587 527 405 537 286 543 132Capital transfers 71 956 64 525 57 388 57 321 57 758

TOTAL EXPENSES 2 653 765 2 718 239 2 769 468 2 893 292 2 973 088

NET OPERATING BALANCE 23 332 33 659 50 746 10 728 6 187

lessNet acquisition of non financial assets

Purchases of non financial assets 202 149 264 370 233 292 190 641 193 638Sales of non financial assets - 33 496 - 33 949 - 29 859 - 34 234 - 34 204less Depreciation 134 160 137 149 140 218 145 043 148 244plus Change in inventories plus Other movements in non financial assets

- 532 25 390 58 093 15 056 1 077

Total net acquisition of non financial assets

33 961 118 662 121 308 26 420 12 267

equalsNET LENDING/BORROWING (Fiscal balance) - 10 629 - 85 003 - 70 562 - 15 692 - 6 080

112


113

Table 9.2

2004-05 2005-06 2006-07 2007-08 2008-09Estimate Budget Forward Estimates

$000 $000 $000 $000 $000ASSETSFinancial assets

Cash and deposits 77 692 40 972 56 271 29 242 38 426Advances paid 74 396 74 495 75 083 75 700 76 348Investments, loans and placements 372 751 383 543 392 985 409 478 423 873Other non equity assets 95 236 91 810 88 998 91 567 88 295Equity 1 612 397 1 653 540 1 684 466 1 710 455 1 733 351

Total financial assets 2 232 472 2 244 360 2 297 803 2 316 442 2 360 293

Non financial assetsLand and fixed assets 3 569 714 3 686 560 3 805 802 3 829 906 3 839 607Other non financial assets

Total non financial assets 3 569 714 3 686 560 3 805 802 3 829 906 3 839 607

TOTAL ASSETS 5 802 186 5 930 920 6 103 605 6 146 348 6 199 900

LIABILITIESDeposits held 83 378 98 568 110 351 96 720 110 648Advances received 23 276 22 947 22 618 22 565 22 512Borrowing 1 628 785 1 650 112 1 705 474 1 717 743 1 714 583Superannuation liability 1 492 877 1 503 661 1 511 245 1 515 811 1 518 330Other employee entitlements and provisions

331 080 331 749 332 522 333 120 333 350

Other non equity liabilities 66 425 68 440 74 557 66 560 66 843

TOTAL LIABILITIES 3 625 821 3 675 477 3 756 767 3 752 519 3 766 266

NET WORTH 2 176 365 2 255 443 2 346 838 2 393 829 2 433 634

NET FINANCIAL WORTH (a) -1 393 349 -1 431 117 -1 458 964 -1 436 077 -1 405 973

NET DEBT (b) 1 210 600 1 272 617 1 314 104 1 322 608 1 309 096

(a) Net financial worth equals total financial assets minus total liabilities.

(b) Net debt equals the sum of deposits held, advances received and borrowing, minus the sum of cash and deposits, advances paid, and investments, loans and placements.

General Government Sector Balance Sheet


Table 9.3


$000 $000 $000 $000 $000Cash receipts from operating activities

Taxes received 294 598 299 290 305 128 304 875 310 039Receipts from sales of goods and services 104 308 98 003 99 417 101 673 103 904Grants and subsidies received 2 136 638 2 217 530 2 278 374 2 361 027 2 432 032Other receipts 151 968 134 883 135 087 128 853 131 550

Total operating receipts 2 687 512 2 749 706 2 818 006 2 896 428 2 977 525

Cash payments for operating activitiesPayment for goods and services -1 748 430 -1 859 805 -1 910 952 -2 032 735 -2 092 919Grants and subsidies paid - 593 723 - 585 112 - 584 793 - 594 607 - 600 890Interest paid - 127 210 - 117 618 - 114 022 - 118 728 - 122 992Other payments

Total operating payments -2 469 363 -2 562 535 -2 609 767 -2 746 070 -2 816 801

NET CASH FLOWS FROM OPERATING ACTIVITIES

218 149 187 171 208 239 150 358 160 724

Net cash flows from investments in non financial assets

Sales of non financial assets 33 496 33 949 29 859 34 234 34 204Purchases of non financial assets - 202 149 - 264 370 - 233 292 - 190 641 - 193 638


- 168 653 - 230 421 - 203 433 - 156 407 - 159 434

Net cash flows from investments in financial assets for policy purposes (a)

- 21 406 - 5 099 - 588 - 617 - 648

Net cash flows from investments in financial assets for liquidity purposes

95 195 310 2 358 - 3 893 - 1 095

NET CASH FLOWS FROM INVESTING ACTIVITIES

- 94 864 - 235 210 - 201 663 - 160 917 - 161 177

Net cash flows from financing activitiesAdvances received (net) 7 171 - 329 - 329 - 53 - 53Borrowing (net) - 6 920 - 3 543 - 2 731 - 2 787 - 4 237Deposits received (net) - 107 348 15 190 11 783 - 13 631 13 928Distributions paid Other financing (net) - 1 176

NET CASH FLOWS FROM FINANCING ACTIVITIES

- 108 273 11 318 8 723 - 16 471 9 638

NET INCREASE/DECREASE IN CASH HELD 15 013 - 36 720 15 299 - 27 029 9 184

Net cash from operating activities and investments in non financial assets

49 496 - 43 250 4 806 - 6 049 1 290

Finance leases and similar arrangements - 3 000 - 24 870 - 58 093 - 15 056 - 1 077

SURPLUS (+)/DEFICIT (-) 46 496 - 68 120 - 53 287 - 21 105 213

(a) Includes equity acquisitions, disposals and privatisations (net).

General Government Sector Cash Flow Statement

114


Table 9.4


$000 $000 $000 $000 $000REVENUE

Current grants and subsidies 124 850 127 819 124 888 124 805 125 854Capital grants 13 037 13 303 13 599 13 904 14 217Sales of goods and services 404 653 404 471 412 396 418 700 424 993Interest income 14 526 14 459 14 294 14 264 14 716Other 46 964 37 507 37 796 37 540 37 672

TOTAL REVENUE 604 030 597 559 602 973 609 213 617 452

EXPENSESGross operating expenses 498 826 501 824 512 282 521 815 537 322

Depreciation 74 863 77 242 78 766 79 222 80 472Employee expenses 50 592 52 195 56 018 58 045 59 667Other operating expenses 373 371 372 387 377 498 384 548 397 183

Other interest expenses 50 204 51 588 51 579 51 682 52 155Other property expenses 33 642 28 138 27 916 29 038 23 955Current transfers 1 820 1 820 1 820 1 820 1 820Capital transfers 1 495 995 995 995 995

TOTAL EXPENSES 585 987 584 365 594 592 605 350 616 247



Purchases of non financial assets 164 936 121 218 107 137 121 452 106 457Sales of non financial assets -25 101 -25 120 -25 120 -25 120 -25 120less Depreciation 74 863 77 242 78 766 79 222 80 472plus Change in inventories -1 356 plus Other movements in non financial assets

6 538 6 000 6 000 6 000 6 000

Total net acquisition of non financial assets 70 154 24 856 9 251 23 110 6 865

equalsNET LENDING/BORROWING (Fiscal balance) -52 111 -11 662 - 870 -19 247 -5 660

Public Non Financial Corporation Sector Operating Statement

115


Table 9.5



Cash and deposits 48 088 53 166 44 342 40 218 34 103Investments, loans and placements 182 804 183 195 183 586 183 977 184 368Other non equity assets 61 834 61 269 61 853 61 721 62 904Equity

Total financial assets 292 726 297 630 289 781 285 916 281 375



TOTAL ASSETS 2 275 466 2 294 437 2 284 754 2 292 609 2 283 230

LIABILITIESDeposits held 1 415 1 415 1 415 1 415 1 415Advances received 302 160 302 160 302 160 302 160 302 160Borrowing 369 725 377 881 371 668 384 528 386 952Superannuation liability Other employee entitlements and provisions

43 043 39 226 38 265 40 156 37 282


TOTAL LIABILITIES 753 309 764 875 757 896 773 278 774 397

Shares and other contributed capital 1 522 157 1 529 562 1 526 858 1 519 331 1 508 833

NET WORTH

NET FINANCIAL WORTH (a) - 460 583 - 467 245 - 468 115 - 487 362 - 493 022

NET DEBT (b) 442 408 445 095 447 315 463 908 472 056



Public Non Financial Corporation Sector Balance Sheet

116


Table 9.6


$000 $000 $000 $000 $000Cash receipts from operating activities

Receipts from sales of goods and services 401 592 405 031 411 813 418 832 423 810Grants and subsidies received 62 360 64 420 65 778 67 175 68 612Other receipts 122 467 122 668 118 799 117 338 117 847

Total operating receipts 586 419 592 119 596 390 603 345 610 269

Cash payments for operating activitiesPayment for goods and services -424 189 -418 181 -433 799 -441 852 -455 134Grants and subsidies paid -3 315 -2 815 -2 815 -2 815 -2 815Interest paid -50 273 -51 673 -51 711 -51 793 -52 301Other payments

Total operating payments -477 777 -472 669 -488 325 -496 460 -510 250


108 642 119 450 108 065 106 885 100 019


Sales of non financial assets 25 101 25 120 25 120 25 120 25 120Purchases of non financial assets -164 936 -121 218 -107 137 -121 452 -106 457


-139 835 -96 098 -82 017 -96 332 -81 337


-28 391 - 391 - 391 - 391 - 391



-168 226 -96 489 -82 408 -96 723 -81 728

Net cash flows from financing activitiesAdvances received (net) Borrowing (net) 9 552 8 156 -6 213 12 860 2 424Deposits received (net) - 478 Distributions paid -48 599 -31 039 -28 268 -27 146 -26 830Other financing (net) 5 300 5 000


-34 225 -17 883 -34 481 -14 286 -24 406

NET INCREASE/DECREASE IN CASH HELD -93 809 5 078 -8 824 -4 124 -6 115


-31 193 23 352 26 048 10 553 18 682

Distributions paid -48 599 -31 039 -28 268 -27 146 -26 830Finance leases and similar arrangements

SURPLUS (+)/DEFICIT (-) -79 792 -7 687 -2 220 -16 593 -8 148


Public Non Financial Corporation Sector Cash Flow Statement

117


Table 9.7


$000 $000 $000 $000 $000REVENUE

Taxation revenue 291 640 296 175 301 932 301 009 306 173Current grants and subsidies 2 060 640 2 150 328 2 209 825 2 290 903 2 360 952Capital grants 75 498 67 202 68 549 70 124 71 080Sales of goods and services 470 873 471 694 481 481 488 644 496 668Interest income 29 542 28 217 28 310 28 394 28 511Other 134 252 127 130 127 325 126 877 129 325

TOTAL REVENUE 3 062 445 3 140 746 3 217 422 3 305 951 3 392 709

EXPENSESGross operating expenses 2 296 025 2 390 351 2 454 627 2 575 338 2 658 351

Depreciation 209 023 214 391 218 984 224 265 228 716Employee expenses 1 099 540 1 139 772 1 162 411 1 195 227 1 226 258Other operating expenses 987 462 1 036 188 1 073 232 1 155 846 1 203 377

Nominal superannuation interest expense

88 015 89 573 90 220 90 675 90 949

Other interest expenses 173 858 167 164 164 327 166 634 172 383Other property expenses Current transfers 403 259 399 588 405 437 414 301 419 098Capital transfers 59 912 47 217 43 684 44 412 44 536

TOTAL EXPENSES 3 021 069 3 093 893 3 158 295 3 291 360 3 385 317



Purchases of non financial assets 367 085 385 588 340 429 312 093 300 095Sales of non financial assets - 58 597 - 59 069 - 54 979 - 59 354 - 59 324less Depreciation 209 023 214 391 218 984 224 265 228 716

plus Change in inventories - 1 356 plus Other movements in non financial assets

6 007 31 390 64 093 21 056 7 077

Total net acquisition of non financial assets 104 116 143 518 130 559 49 530 19 132

equalsNET LENDING/BORROWING (Fiscal balance) - 62 740 - 96 665 - 71 432 - 34 939 - 11 740

Non Financial Public Sector Operating Statement

118


Table 9.8



Cash and deposits 84 566 49 488 64 432 36 522 45 536Advances paid 257 200 257 690 258 669 259 677 260 716Investments, loans and placements 372 751 383 543 392 985 409 478 423 873Other non equity assets 127 425 126 441 124 565 125 109 125 894Equity 90 242 123 980 157 610 191 126 224 520

Total financial assets 932 184 941 142 998 261 1 021 912 1 080 539



TOTAL ASSETS 6 484 638 6 624 509 6 799 036 6 858 511 6 922 001

LIABILITIESDeposits held 43 579 55 333 75 585 65 197 85 070Advances received 325 436 325 107 324 778 324 725 324 672Borrowing 1 998 510 2 027 993 2 077 142 2 102 271 2 101 535Superannuation liability 1 492 877 1 503 661 1 511 245 1 515 811 1 518 330Other employee entitlements and provisions

349 768 349 519 349 683 350 281 350 511


TOTAL LIABILITIES 4 308 273 4 369 066 4 452 198 4 464 682 4 488 367

NET WORTH 2 176 365 2 255 443 2 346 838 2 393 829 2 433 634

NET FINANCIAL WORTH (a) -3 376 089 -3 427 924 -3 453 937 -3 442 770 -3 407 828

NET DEBT (b) 1 653 008 1 717 712 1 761 419 1 786 516 1 781 152



Non Financial Public Sector Balance Sheet

119


Table 9.9


$000 $000 $000 $000 $000

Cash receipts from operating activitiesTaxes received 291 333 295 675 301 432 301 009 306 173Receipts from sales of goods and services 468 502 472 548 480 871 490 146 497 355Grants and subsidies received 2 132 298 2 217 530 2 278 374 2 361 027 2 432 032Other receipts 151 252 147 365 150 602 145 205 148 345

Total operating receipts 3 043 385 3 133 118 3 211 279 3 297 387 3 383 905

Cash payments for operating activitiesPayment for goods and services -2 131 984 -2 243 897 -2 310 696 -2 440 363 -2 513 829Grants and subsidies paid - 459 151 - 446 805 - 449 121 - 458 713 - 463 634Interest paid - 174 058 - 166 834 - 163 426 - 168 214 - 172 529Other payments

Total operating payments -2 765 193 -2 857 536 -2 923 243 -3 067 290 -3 149 992


278 192 275 582 288 036 230 097 233 913


Sales of non financial assets 58 597 59 069 54 979 59 354 59 324Purchases of non financial assets - 367 085 - 385 588 - 340 429 - 312 093 - 300 095


- 308 488 - 326 519 - 285 450 - 252 739 - 240 771


- 44 497 - 490 - 979 - 1 008 - 1 039


95 195 310 2 358 - 3 893 - 1 095


- 257 790 - 326 699 - 284 071 - 257 640 - 242 905

Net cash flows from financing activitiesAdvances received (net) 7 171 - 329 - 329 - 53 - 53Borrowing (net) 2 632 4 613 - 8 944 10 073 - 1 813Deposits received (net) - 10 977 11 754 20 252 - 10 388 19 873Distributions paid Other financing (net) - 1 176


- 2 350 16 038 10 979 - 368 18 007

NET INCREASE/DECREASE IN CASH HELD 18 053 - 35 078 14 944 - 27 910 9 014


- 30 296 - 50 937 2 586 - 22 642 - 6 858

Distributions paid Finance leases and similar arrangements - 3 000 - 24 870 - 58 093 - 15 056 - 1 077

SURPLUS (+)/DEFICIT (-) - 33 296 - 75 807 - 55 507 - 37 698 - 7 935


Non Financial Public Sector Cash Flow Statement

120


Table 9.10

2004-05Estimate

$000

REVENUECurrent grants and subsidies

Capital grants

Sales of goods and services 94 434

Interest income 205 206

Other 9 847

TOTAL REVENUE 309 487

EXPENSESGross operating expenses 104 980

Depreciation 1 257

Employee expenses 16 451

Other operating expenses 87 272

Other interest expenses 172 721

Other property expenses 26 196

Current transfers

Capital transfers

TOTAL EXPENSES 303 897

NET OPERATING BALANCE 5 590


Purchases of non financial assets 1 788

Sales of non financial assets

less Depreciation 1 257

plus Change in inventories

plus Other movements in non financial assets

Total net acquisition of non financial assets 531

equalsNET LENDING/BORROWING (Fiscal balance) 5 059

Public Financial Corporation Sector Operating Statement

121


Table 9.11

2004-05Estimate

$000

ASSETSFinancial assets

Cash and deposits 137 749Investments, loans and placements 3 068 508Other non equity assets 92 477Equity

Total financial assets 3 298 734

Non financial assetsLand and fixed assets 6 519Other non financial assets

Total non financial assets 6 519

TOTAL ASSETS 3 305 253

LIABILITIESDeposits held 480 228Advances received 312 982Borrowing 1 935 108Superannuation liability Other employee entitlements and provisions 360 877Other non equity liabilities 126 286

TOTAL LIABILITIES 3 215 481

Shares and other contributed capital 89 772

NET WORTH

NET FINANCIAL WORTH (a) 83 253

NET DEBT (b) - 477 939



Public Financial Corporation Sector Balance Sheet

122


Table 9.12

2004-05Estimate

$000Cash receipts from operating activities

Receipts from sales of goods and services 104 998Grants and subsidies received Other receipts 205 709

Total operating receipts 310 707

Cash payments for operating activitiesPayment for goods and services -94 491Interest paid -170 441Other payments -2 357

Total operating payments -267 289

NET CASH FLOWS FROM OPERATING ACTIVITIES 43 418

Net cash flows from investments in non financial assetsSales of non financial assets Purchases of non financial assets -1 788

Net cash flows from investments in non financial assets -1 788


Net cash flows from investments in financial assets for liquidity purposes -85 251

NET CASH FLOWS FROM INVESTING ACTIVITIES -87 039

Net cash flows from financing activitiesAdvances received (net) -5 414Borrowing (net) -1 000Deposits received (net) 76 802Distributions paid -21 847Other financing (net)

NET CASH FLOWS FROM FINANCING ACTIVITIES 48 541

NET INCREASE/DECREASE IN CASH HELD 4 920

Net cash from operating activities and investments in non financial assets 41 630Distributions paid -21 847Finance leases and similar arrangements

SURPLUS (+)/DEFICIT (-) 19 783


Public Financial Corporation Sector Cash Flow Statement

123


Table 9.13

2004-05Estimate

$000

REVENUETaxation revenue 290 586Current grants and subsidies 2 060 640Capital grants 75 498Sales of goods and services 563 365Interest income 58 833Other 118 978

TOTAL REVENUE 3 167 900

EXPENSESGross operating expenses 2 396 727

Depreciation 210 280Employee expenses 1 115 959Other operating expenses 1 070 488

Nominal superannuation interest expense 88 015Other interest expenses 170 664Other property expenses 2 357Current transfers 403 259Capital transfers 59 912

TOTAL EXPENSES 3 120 934

NET OPERATING BALANCE 46 966

lessNet acquisition of non financial assetsPurchases of non financial assets 368 873Sales of non financial assets - 58 597less Depreciation 210 280plus Change in inventories - 1 356plus Other movements in non financial assets 6 007Total net acquisition of non financial assets 104 647

equalsNET LENDING/BORROWING (Fiscal balance) - 57 681

Total Public Sector Operating Statement

124


Table 9.14

2004-05Estimate

$000ASSETSFinancial assets

Cash and deposits 191 448Advances paid 227 673Investments, loans and placements 1 160 544Other non equity assets 190 817Equity 470

Total financial assets 1 770 952

Non financial assetsLand and fixed assets 5 558 973Other non financial assets

Total non financial assets 5 558 973

TOTAL ASSETS 7 329 925

LIABILITIESDeposits held 481 664Advances received 305 621Borrowing 1 967 449Superannuation liability 1 492 877Other employee entitlements and provisions 686 839Other non equity liabilities 219 110

TOTAL LIABILITIES 5 153 560

Shares and other contributed capital

NET WORTH 2 176 365

NET FINANCIAL WORTH (a) -3 382 608

NET DEBT (b) 1 175 069


Total Public Sector Balance Sheet


125


Table 9.15

2004-05Estimate

$000Cash receipts from operating activities

Taxes received 290 279Receipts from sales of goods and services 571 558Grants and subsidies received 2 132 298Other receipts 155 958

Total operating receipts 3 150 093

Cash payments for operating activitiesPayment for goods and services -2 222 229Grants and subsidies paid - 459 151Interest paid - 166 593Other payments - 2 357

Total operating payments -2 850 330

NET CASH FLOWS FROM OPERATING ACTIVITIES 299 763

Net cash flows from investments in non financial assetsSales of non financial assets 58 597Purchases of non financial assets - 368 873

Net cash flows from investments in non financial assets - 310 276

Net cash flows from investments in financial assets for policy purposes (a) - 43 151

Net cash flows from investments in financial assets for liquidity purposes 18 434

NET CASH FLOWS FROM INVESTING ACTIVITIES - 334 993

Net cash flows from financing activitiesAdvances received (net) 411Borrowing (net) - 4 517Deposits received (net) 73 984Distributions paid Other financing (net) - 1 176

NET CASH FLOW FROM FINANCING ACTIVITIES 68 702

NET INCREASE/DECREASE IN CASH HELD 33 473

Net cash from operating activities and investments in non financial assets - 10 513Distributions paid Finance leases and similar arrangements - 3 000

SURPLUS (+)/DEFICIT (-) - 13 513


Total Public Sector Cash Flow Statement

126


Table 9.16

General Government Sector Taxes 2004-05Estimate

2005-06Budget

$000 $000

TAXES ON EMPLOYERS' PAYROLL AND LABOUR FORCE 105 208 109 456Payroll taxes 105 208 109 456

TAXES ON PROPERTY 87 068 80 606Stamp duties on financial and capital transactions 78 011 79 865Financial institutions transaction taxes 9 057 741

TAXES ON THE PROVISION OF GOODS AND SERVICES 66 820 73 549Taxes on gambling 44 503 50 562Taxes on insurance 22 317 22 987Other

TAXES ON THE USE OF GOODS AND PERFORMANCE OF ACTIVITIES 35 844 36 179Motor vehicle registration fees 35 844 36 179Other

TOTAL TAXES 294 940 299 790

127


Table 9.17

General Government Sector Expenses 2004-05Estimate

2005-06Budget

$000 $000

General public services 166 237 169 778Public order and safety 280 616 284 860Education 554 333 557 044Health 543 641 563 954Social security and welfare 99 271 103 044Housing and community amenities 45 320 46 400Recreation and culture 238 622 230 434Fuel and energy 51 173 62 175Agriculture, forestry, fishing and hunting 50 206 48 390Mining, manufacturing and construction 113 682 110 726Transport and communications 89 698 86 923Other economic affairs 74 177 74 319Other purposes 346 790 380 192

TOTAL OPERATING EXPENSES 2 653 765 2 718 239

128


Table 9.18

2005-06 Loan Council Allocation (LCA)Loan Council

AllocationBudget-time

Estimate

$M $M2005-06 LOAN COUNCIL NOMINATIONGeneral government sector cash deficit (+) / surplus (-) 16 68Public non financial corporations sector cash deficit (+) / surplus (-) 1 8Non financial public sector cash deficit (+) / surplus (-) 17 76

less Net cash flows from investments in financial assets for policy purposes 0 0

plus Memorandum items - -

2005-06 LOAN COUNCIL NOMINATION 17 76Tolerance limit (2% of non financial public sector cash receipts from operating activities)

61 63

Change in loan council allocation 59

LATEST ESTIMATE OF 2004-05 LOAN COUNCIL ALLOCATION OUTCOMEGeneral government sector cash deficit (+) / surplus (-) 0 - 46Public non financial corporations sector cash deficit (+) / surplus (-) 56 80Non financial public sector cash deficit (+) / surplus (-) 56 34

less Net cash flows from investments in financial assets for policy purposes 1 - 44

plus Memorandum items - -

2004-05 LOAN COUNCIL ALLOCATION ESTIMATE 55 78Tolerance limit (2% of non financial public sector cash receipts from operating activities)

59 59

Change in loan council allocation 11 34

Note: The tolerance limit applies to jurisdictions' LCA nomination and revised LCA at Budget time, and between the Budget time LCA and LCA outcome. The tolerance limit in relation to 2004-05 is $59 million. The latest estimate for 2004-05 is $78 million, an improvement of $34 million from the 2004-05 Budget time estimate of $44 million, which is within thistolerance limit.

129

Appendix: Classification of Entities in the Northern Territory Public Sector General Government Aboriginal Areas Protection Authority Auditor-General’s Office AustralAsia Railway Corporation3

Batchelor Institute of Indigenous Territory Education3

Central Holding Authority Construction Division 1

Department of Business, Industry and Resource Development Department of Community Development, Sport and Cultural Affairs Department of Corporate and Information Services Department of Employment, Education and Training Department of Health and Community Services Department of Infrastructure, Planning and Environment Department of Justice Department of the Chief Minister Department of the Legislative Assembly Government Printing Office1

Data Centre Services1

Land Development Corporation Nominal Insurer3

Desert Knowledge Australia3

NT Build3,4

Northern Territory Electoral Commission Northern Territory Legal Aid Commission3

Northern Territory Major Events Company3

Northern Territory Police, Fire and Emergency Services Northern Territory Tourist Commission Northern Territory Treasury NT Fleet1

Office of the Commissioner for Public Employment Ombudsman’s Office Territory Discoveries1

Territory Motor Sports Board3

Territory Wildlife Parks1

Public Non Financial Corporations Darnor Pty Ltd3

Darwin Bus Service1

Darwin Port Corporation1

Gasgo Pty Ltd3

Indigenous Essential Services Pty Ltd3

Territory Housing1

Power and Water Corporation2,3

Public Financial Corporations Northern Territory Treasury Corporation1

Territory Insurance Office 3

1 Government business divisions

2 Government owned corporation

3 Non-budget sector entity

4 Will be established 1 July 2005

131

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