Ms O’CONNOR – In terms TASCORP’s investments, more and more people are expecting government, when it holds money in trust for them, to make sure that money is being applied ethically or towards sustainable investments. Does TASCORP invest in fossil fuel industries, for example, or weapons manufacturers?
Mr FERRALL – TASCORP doesn’t directly, but there may be some parties that we deal with who may.
Ms O’CONNOR – How does TASCORP, or does TASCORP, in any way, test where it’s investing to make sure that Tasmanian money is not going towards fossil fuel industries or unethical investments? Is there any metric for testing that or any plan to get better at it?
Mr FERRALL – In terms of investments, we do look at the ESG of counterparties.
Ms O’CONNOR – The what, sorry?
Mr FERRALL – The environmental, social and governance of the counterparties, but we don’t specifically identify whether those parties are investing in, as you say, their investments, which may be considered by some components of the community to be undesirable or unethical. By way of example, we would have significant investments with Australian banks, we have significant investments with other central borrowing authorities. We don’t trace their investments and, if you can imagine, with significant Australian banks that is very difficult to do. Even with other central borrowing authorities where we might be holding their bonds, there may be investments they have which might have parties they’re dealing with who might fall into the categories you have advised.
Ms O’CONNOR – A number of public entities, universities and the like are explicitly divesting from unethical or harmful industries. Is TASCORP thinking of making any moves to apply that kind of ethics and sustainability test at all?
Mr FERRALL – We are not specifically looking at divesting any investments at the moment in respect of that. Quite obviously we monitor what may be occurring with our counterparties, and if there was a situation developing where there was a particularly unethical counterparty that was starting to appear, or starting to appear unethical, then we would look at divestment.
It is quite difficult, because you have to form value judgments around what you might consider unethical. There is a grey part, as opposed to just a black and a white part, when you are dealing with those investments.
Ms O’CONNOR – With respect, that’s part of the reason the planet’s cooking, is that public finance corporations are making value judgments on their investments and going for the higher-value investment, even though that might be part of the problem. I will just leave that as a comment.
Ms O’CONNOR – Who does TASCORP borrow from overseas?
Mr FERRALL – We issue bonds which overseas investors invest in. At the moment, I’m not sure if I can say who they are, but it varies. Our bonds are tradable. It’s not like we are borrowing from a particular investor and that sticks there. An investor buys our bonds and investors can sell our bonds. They’re market tradable instruments. We would not necessarily know who might be holding them at all times.
Ms O’CONNOR – Do we have any money in offshore accounts? I’d like to take you to page 55 of the annual report. This is about the client advances. Could you talk us through this? There are significant sums of money in client advances, particularly to Treasury and Finance. Could you explain – I’m a bright 11‑year‑old – what the $4 billion figure in 2024 is like?
Mr FERRALL – In simplistic terms, that is a measure of the amount of borrowing that Treasury has taken on behalf of the Crown or the government as at 30 June 2024.
Ms O’CONNOR – Treasury’s borrowings in the past year have been a bit over $4 billion?
Mr FERRALL – No, because in 2023 they were $2.5 billion.
Ms O’CONNOR – Is this cumulative?
Mr FERRALL – Using those numbers, they’ve moved by a billion and a half over the year.
Ms O’CONNOR – Okay. For the Homes Tasmania borrowings, we had documents that were released under RTI that suggested that, as of earlier this year, Homes Tasmania has a debt facility of about $764 million with TASCORP. Is this accurate?
Mr FERRALL – No. Homes Tasmania has a limit with TASCORP of $336 million. As at 28 November it had $331.2 million.
Ms O’CONNOR – In order to fulfil its capital objectives, Homes Tasmania will need to expand their debt facility. Isn’t that the case? We’ve had them at the table in other committees and the projection is that the borrowings will be significantly higher than what’s detailed here.
Mr FERRALL – Homes Tasmania has a significant ambition of a forward borrowing program to support the construction of the 10,000 homes. That figure I’ve given you was at 28 November, but they do have a forward borrowing program which is more significant.
Ms O’CONNOR – I am really clear in my mind. So, when you said the limit on Homes Tasmania’s borrowing that has been set to date, is it $336 million?
Mr FERRALL – Again, that was as of 28 November. Yes.
Ms O’CONNOR – As at 28 November, but there’s an expectation in TASCORP that the borrowings will be extended for Homes Tasmania in forward years.
Mr FERRALL – Yes, going forward, yes.
Ms O’CONNOR – Okay. Thank you. So, also on this list –
Mr FERRALL: I mean, there is – there is currently additional provision for this year as well of 140. So, I’ll explain the limits which might help you. So, TASCORP sets limits for, you know, its clients, and that’s – in large part, that’s driven now by the approved level of borrowing that is guaranteed by the Treasurer and, so, that becomes the limit. If a client – and I’ll use Homes Tasmania as the client – is looking to borrow further, beyond that limit, we go through an approach of looking at Homes Tasmania and whether Homes Tasmania can support the additional borrowing.
Given that Homes Tasmania is principally solely supported in terms of its borrowing by support from the general government sector, we look at whether the forward budget supports the level of additional borrowing and then, in a sort of mechanical sense, the Treasurer is brought into it, into the situation, with Homes Tasmania going to the Treasurer and seeking additional borrowing capacity for Homes Tasmania, but also, on the TASCORP side, we would look for an increase in the guarantee under section 15 of the TASCORP act to ensure that we could be satisfied that we’re not organisationally at undue risk in terms of Homes Tas meeting –
Ms O’CONNOR – Thank you. Can I ask, on this list is a line item that says ‘other participating authorities’. I don’t see Stadiums Tasmania or Macquarie Point Development Corporation listed as TASCORP clients. Has there been an approach from Stadiums Tasmania to TASCORP to borrow for the stadium?
Mr FERRALL – No approach.
Mr BAKER – No approach or a borrowing request. We’ve had an introductory meeting with them when they were established but, yes, at this stage they have not come forward with any requirements for borrowings.
Ms O’CONNOR – Is it the expectation that Stadiums Tasmania would need to approach TASCORP in order to fund the stadium should it be approved?
Mr FERRALL – Look, I don’t think TASCORP has any expectation on that front at this point. I really think it’s a matter for government to work through in terms of, you know, how it is going to be dealing ultimately with the cost of the stadium.
Ms O’CONNOR – And is, can I just ask –
CHAIR – It’s not just that stadium, it’s also UTAS Stadium and potentially Dial Park if they take that over.
Ms O’CONNOR – Can I just ask, has Macquarie Point Development Corporation approached TASCORP for funding support? Are they potentially in the ‘other participating authorities’?
Mr BAKER – No borrowings with Macquarie Point at this stage, nor have we got any formal requests for borrowings.
Ms O’CONNOR – Okay. Thanks.
Ms O’CONNOR – Page 10 of the annual report talks about TASCORP operations and makes the point that, similar to the 2022-23 financial year, the majority of new client advances were made to the general government sector, these advances rising by $1.4 billion to $4.4 billion. Is that general government sector primarily GBEs –
Mr FERRALL – General government sectors.
Ms O’CONNOR – Treasury?
Mr FERRALL – The Treasurer, yes.
Ms O’CONNOR – Given the lendings to the general government sector are increasing over time, what is the likely projection for 2025‑26? I’m not very good at this stuff, but to this intelligent 11‑year‑old it looks like lending to the general government sector will have to keep increasing in order to service the debt.
CHAIR – And provide services.
Ms O’CONNOR – Is that correct and are we likely to see a turnaround? This is funding for recurrent spending also, isn’t it?
Mr FERRALL – It’s funding to support the budget, which includes capital and recurrent, potentially. The level of borrowings is going to continue to increase, which is shown in the government’s forward Estimates in the budget papers. That is effectively the step through of the levels that the gross and net borrowings is currently expected to reach. That is going to mean that TASCORP borrows more.
Ms O’CONNOR – That does raise an obvious financial sustainability question for the state, doesn’t it?
Mr FERRALL – I think the questions of financial sustainability are questions of policy for the government as opposed to questions for TASCORP.
TASCORP is in a position where we believe we can raise the level of funding that the government needs and is managing going forward. At this point we don’t believe there’ll be any difficulty in raising that funding from a TASCORP perspective. In terms of questions of state government budget management, they’re more appropriately addressed in another forum or with the Treasurer from a policy perspective.
Ms O’CONNOR – When you say policy, you talk about how government might bring down the debt and the necessary level of borrowings to service that debt by making cuts or efficiencies. That’s the policy question, isn’t it?
Mr FERRALL – No, I’m being broader than that. I’m not implying that the government will or won’t make any decisions in relation to cuts or otherwise.
Ms O’CONNOR – I know you can’t.
Mr FERRALL – All I’m saying is the state’s borrowing is a question of policy for the government.
Ms O’CONNOR – If this grey band area and blue band area keeps growing, is there a point at which there’s a conversation between TASCORP, yourself or the board and the Treasurer? You can’t keep blowing up a balloon What role does TASCORP play in advising government about how these graphs will look going forward?
Mr FERRALL – From a TASCORP perspective, we’re comfortable we can raise the level of debt that the government is projecting it will need to support over the Budget and the forward Estimates. I don’t think there’s any doubt the Tasmanian budget is going to come under increasing pressure as we go forward. That’s demonstrated in the government’s current forward Estimates. It’s not something the government is shirking from as far as I’m aware, they recognise there is a continuing challenge.
The government has a fiscal strategy, which is not being met at the moment in total. There will need to be changes going forward in order to meet that fiscal strategy and to ultimately get debt under control. Now, that’s not a revelation.
CHAIR – It is also more a matter for government than TASCORP, I’d suggest, is it?
Mr FERRALL – It is more an issue for government than TASCORP. As I said, TASCORP doesn’t hold the policy instruments that are necessary for TASCORP to make the changes that might be required. They are a matter for government to make decisions in relation to its taxing, in relation to its expenditure and it’s in respect of its capital expenditure.
CHAIR – I might go back to TASCORP.
Ms O’CONNOR – I think that is a legitimate question to ask, because TASCORP plays any sort of advisory role on risk to government.
CHAIR – But that’s more to the government.
Ms O’CONNOR – I’m happy for the Treasurer to answer it.
CHAIR – Did you want to make a comment on that, minister?
Mr BARNETT – Yes, I’d be happy to. I am just concurring with the chairman’s remarks and indicate that we have a pathway to surplus and the debt is manageable. And that’s why we’re going through a budget process at the moment. And we’re getting feedback, obviously from the community. I’m taking advice from Treasury and others across government as we prepare the next budget, which is due on 29 May; the last one obviously on 12 September.
We are moving reasonably swiftly and have a lot of work to do. I want to acknowledge both the national and global headwinds we do have and say this is not new to just one jurisdiction, as in Tasmania, this is common across Australia. We had a Treasury ministers meeting last Friday and these challenges are there for all of us.
Ms O’CONNOR – Is the Commonwealth going to chip in, do you think? Again?
CHAIR – I reckon they’ve done their bit.
Ms O’CONNOR – Has there been an approach made to the Commonwealth about future Mersey Hospital funding?
Mr BARNETT – I’m not aware of any approach to the Commonwealth regarding that funding. I’m aware of other approaches on other matters, and look forward to ongoing engagement accordingly.
Ms O’CONNOR – Is there a debt limit that the state would have? Is there a point at which – and I don’t know if this is more a question for Treasury than TASCORP – but TASCORP undertakes the borrowing. Is there a point at which the state, is there a number, or an understanding, that there’s a debt limit for the state?
Mr FERRALL – No. There isn’t, simplistically, a debt limit. There would be a point where we, as a jurisdiction or as a CBA, would not be able to raise money in the markets, but what that is, again is an unknown. Ultimately, parties who are lending or investing, investors, effectively look at the capacity of the state to provide the return and for them to ultimately recover their full investment. There isn’t simplistically a debt limit that we’d say ‘X billion’ is all the state could ever borrow. However, at some point, as we’re seeing in the UK, markets react to behaviours of governments. They react pretty quickly. The UK found that there was a debt limit.
CHAIR – Well, Liz Truss did, anyway.
Ms O’CONNOR – Can I ask a question about Homes Tasmania? I’m interested to learn, when Homes Tasmania seeks to increase its borrowing, how TASCORP works with Homes Tasmania to understand how those borrowing costs might be met by Homes Tasmania – given that, presumably, they have a large capital program, but that’ll take some time to come to fruition and earn any income. What’s the process of sitting down with an entity like Homes Tasmania, which is a new business, if you like, to work through future sustainability of that entity? Noting that today, a review of Homes Tasmania has just been announced, so there’s more scrutiny and upheaval for this entity, how does TASCORP work with Homes Tasmania on those questions?
Mr FERRALL – As a new entity, TASCORP is effectively reliant on the budget forward Estimates, which indicate the level of support that the government is providing Homes Tasmania for debt support or debt servicing.
We have worked with Homes Tasmania in respect of its forward budgets and, again, as a newish entity it is working through a number of challenges in relation to how it’s going to manage all of its requirements going forward. From the narrow TASCORP perspective, we’re comfortable that we have a guarantee from the Treasurer, and the level of borrowings that Homes Tasmania has, and would be approved potentially in the future, will be supported by the government.
Ms O’CONNOR – The government.
Mr FERRALL – The government. We’re comfortable with that scenario, from that narrow perspective.
Ms O’CONNOR – Is there a process, however, of TASCORP working with Homes Tasmania, should they come for extended borrowings, or is the guarantee of the Treasury enough?
Mr FERRALL – The guarantee from the Treasurer is not enough on its own. We work with all of the entities in respect of whether we believe we have concerns, or otherwise, about their capacity to meet their proposed borrowing program, and how they would need to meet it. Ultimately, we would lend to any entity that the government required support for, because we are the central borrowing authority for the state, but we would work with the entities in relation to their capacity. In terms of the Treasurer providing a guarantee – depending on the circumstances, we may provide the Treasurer with advice, from a TASCORP perspective, in relation to the particular entity and what providing the guarantee might entail or mean.
Ms O’CONNOR – The TASCORP act (Tasmanian Public Finance Corporation Act 1985) is becoming quite aged. This might be a question for the Treasurer – is there any move potentially to update the act? It was interesting that in your opening remarks, Treasurer, you made the statement that TASCORP is here for the benefit of the people of Tasmania – and I’m sure that’s true – but it’s nowhere explicit in the legislation, for example, that that’s TASCORP’s primary purpose. Are there any moves to modernise the act? Is there any need? Or is the act working well?
Mr FERRALL – I think the act works well. We haven’t found it to be restrictive or concerning from our point of view. Certainly, if the government is looking at the GBE act, then TASCORP, as a GBE, would pick up any changes that occur in the GBE act. TASCORP’s act specifically, there were changes made in respect of the legislative guarantee from the Treasurer. There have been some amendments over time. It hasn’t been an act that I think needs substantial amendment, personally, but like all legislation, over time things can change and things need change and improvement. It certainly doesn’t [inaudible] any restrictions in terms of us operating in the market. We’re not finding that there’s any concerns. I think the limitations in terms of our functions and powers are appropriate in that they require us to have due regard to appropriate levels of financial risk. As we go forward, TASCORP could probably seek some assistance in what that might mean or interpret in terms of what are appropriate levels of financial risk. Then there’s an overlay of question of financial risk to whom, which we might seek some guidance on as well. The financial risk to the entity might be quite different to the financial risk to the entity we’re lending to or to the Treasury of the state of Tasmania.
Ms O’CONNOR – The state of Tasmania.
Mr FERRALL – The GBE act provides us with appropriate guidance in terms of our responsibilities, particularly from a TASCORP perspective in acting in accordance with sound commercial practice, which for an entity like TASCORP is more appropriate, I think, than might be in other circumstances with some of the other entities which might be required to act more as a policy instrument for government. I think the overlay of ‘Tasmania first’ needs to be thought through in terms of articulating to TASCORP and how that links with the TASCORP act. All of those things are things that don’t require the TASCORP act to be blown up or changed, I think they just require appropriate communication and articulation.
Mr BARNETT – I might add to that answer. Thanks very much for the question. I concur with the good results for TASCORP, particularly in the last 12 months. I want to make it very clear in the short couple of months that I’ve been in the Treasury role there’s been no recommendations for reform specifically to the TASCORP legislation. I wanted to make the point as we go through the GBE reform process, which we’re seeking feedback from the public and stakeholders by 13 December. As we consider that and then work through the reform process, we had the chairs and CEOs of all the GBEs that the Premier and I hosted some weeks ago at a round table talking about the GBE reform process, seeking their feedback which they’ve indicated that they will provide by 13 December, which is greatly appreciated. I’m giving you the heads-up that we’ll consider that very carefully. It’s a very serious process and there may or may not be consequential, potentially minor, legislative amendments to TASCORP.
In terms of the GBE reform process, we’re taking it very seriously. I’ve indicated there was likely to be legislative reform measures made available for the public and for yourselves and others by the first quarter of next year and a range of other reform measures that we will release and announce once we’ve given that due consideration based on the feedback. I want to make it clear we’re backing business, we’re growing the economy, it’s a Team Tasmania approach, the GBE reform process, and it’s very important and we’re getting on with the job.
Ms O’CONNOR – I want to go back to the review that’s planned for TT-Line. Sorry to rake over old coals, but just to get some more clarity here. TASCORP has decided to undertake a full review of TT-Line. That would mean finances, borrowings, future necessary borrowings and capacity to repay, is that correct?
Mr FERRALL – Broadly, yes.
Ms O’CONNOR – Was this review initiated by TASCORP or did TT-Line come to TASCORP to talk about the state of the books and then TASCORP decided it was time to do a full review?
Mr FERRALL – We undertake a credit review of most clients annually anyway. We do look at all of our clients annually on the basis of their credit. In respect of TT-Line, the particular catalyst for this one was the MLFA breach, but we would have been doing a review of TT-Line in the normal course anyway. As I said, we don’t sort of set and forget. We do a credit review on the entities, pretty well everyone, annually.
Mr BAKER – Yes.
Mr FERRALL – At the moment so.
Ms O’CONNOR – Okay. So, when you talked earlier about undertaking this full review is what you’re saying is that it is TASCORP’s standard operating procedure with GBEs, but this one in part has been catalysed by a breach but also changing financial circumstances as a result of the incapacity to get the new boats operational?
Mr FERRALL – Well we had. Certainly, there have been changed circumstances over the period of time and since August, when we were advised of the MLFA breach and we decided in the ordinary course we would do a review, there has been more information come out in relation to the delay, which has led to more questions from TASCORP in relation to how different the original business case is as compared to what the future might now look like. So, that’s why from the board perspective we’ve asked management to present that more detailed review.
Ms O’CONNOR – So, that review would involve TT-Line management coming and presenting to TASCORP about their financial position and their likely projections and then working with TASCORP potentially, I think I heard you say earlier, not to refinance but perhaps reschedule some of the repayments? How does it work? When you undertake a review, what’s the outcome likely to be? Without, I mean, obviously, you can’t prejudge the outcome, but what’s the objective?
Mr FERRALL – Well the objective is from the board perspective to ensure that we can be satisfied that TT-Line in the changed circumstances has the capacity to meet its borrowings or projected borrowings going forward.
CHAIR – So, possibly over a longer period, for example?
Mr FERRALL – There could be an outcome, a change in borrowing profile.
So, look, when we from TASCORP get a set of projections from an entity in relation to the period going forward, we look to sensitivity test it around whether the base case makes sense or whether there are other things that we might, from a more conservative point of view, feed into the base case. So, it’s not simplistically picking up what TT-Line might put forward; it’s putting a critical lens over it from a lender perspective. Then in some cases we would go back to the entity and say, ‘Look, we’ve looked at this particular assumption. We don’t think that’s particularly sensible.’ An example might be their business case might have a particularly high or low interest rate assumption and we might look at that and go, ‘Well, no, that doesn’t necessarily make sense and here is our information on the forward curve and we think it’s going to be higher or lower than that, then maybe you should consider that as part of your base case as opposed to something else.’ So, it’s a two-way and detailed interaction. Ultimately, management will present to the board TASCORP’s assessment and then, without pre-empting anything, then TASCORP’s board can make a decision as to what it might need to do, if anything.
Ms O’CONNOR – Okay, thanks for that. Have there been any further breaches of the master loan facility agreement from TT-Line? Or was it a single event that sparked the review?
Mr FERRALL – No. It’s only that they are and are probably still currently in breach of the interest coverage ratio.
Ms O’CONNOR – So, they’re unable to repay the interest on their borrowings?
Mr FERRALL – No.
Ms O’CONNOR – They’re not repaying the interest on their borrowings?
Mr FERRALL – No, they’ve exceeded a particular financial ratio that we set as, call it a prudent financial ratio in relation to interest coverage, and TT-Line is required to report to TASCORP if they exceed that particular interest cover ratio, which is what occurred. Now again, it occurred in June.
Ms O’CONNOR – Yes.
Mr FERRALL – It didn’t occur in May and in a mechanical sense, what TT-Line would be doing is they would internally have something set which says they monitor that. They’re required to report that to TASCORP, which they have. As we’ve discussed earlier, we consider that and take appropriate action if necessary.
Ms O’CONNOR – Okay. Chair, I know the member for Rumney sort of asked this before, but how long is this review process likely to take? When would it please TASCORP to have some resolution to the matters?
CHAIR – Probably yesterday.
Ms O’CONNOR – Yes.
Mr FERRALL – Well we’d like to have the information as quickly as we can, but I can’t require an organisation to produce something it doesn’t know. We are also tied with TT-Line, working through those sorts of requirements to then produce a revised set of projections and revised business case and a review in terms of the cash flows going forward.
It’s a big organisation, they can’t do it instantly and we can’t expect them to and it might take a number of months. As an organisation, we’re not concerned about the delay in receipt of the information because we understand where TT-Line is at this point in time and we don’t have any critical concerns in relation to its capacity to meet its obligations to TASCORP. If we did, we might have a different view.
Ms O’CONNOR – Okay. Thank you.
