Auditor-general criticises state for using rail entity to boost budget
By Matt O'Sullivan
https://www.smh.com.au/by/matt-o'sullivan-hvehy and Tom Rabe
January 24, 2023 — 7.03pm
The NSW auditor-general has warned that taxpayers will be on the hook for further injections of funds to prop up a controversial rail entity which was set up to inflate the state budget.
In a scathing report released late on Tuesday, auditor-general Margaret Crawford found that Treasury sought to use the Transport Asset Holding Entity (TAHE) to hide the true cost of operating the state’s railways from the budget.
The controversial Transport Asset Holding Entity controls billions of dollars’ worth of the state’s rail assets including trains and stations.
The controversial Transport Asset Holding Entity controls billions of dollars’ worth of the state’s rail assets including trains and stations.Credit:Steven Siewert
Her report determined that the state budget was inflated by $1.8 billion in 2015-16 based on assumptions later found to be incorrect, and before an operating model for TAHE was agreed. The state’s finances were also inflated by a further $4.8 billion over the following three years.
Two months before the next state election, the auditor-general warned of the risk that future governments will have to pump more funds into the state’s passenger rail operators so that TAHE can generate sufficient returns off the fees it charges them.
“[The setting up of TAHE] delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW government’s short-term budget objectives, while creating an obligation for future governments,” her report said.
Earlier on Tuesday, Premier Dominic Perrottet, who was treasurer during key periods of TAHE’s development, dismissed concerns about the corporation, insisting the state had “better management of transport assets” through such a structure.
NSW Premier Dominic Perrottet at a motorway construction site on Tuesday.
NSW Premier Dominic Perrottet at a motorway construction site on Tuesday.Credit:Nick Moir
“This is not something that NSW has done in isolation. These are approaches that state governments have taken in the management of transport assets,” he said, hours before the report was tabled in parliament.
However, shadow treasurer Daniel Mookhey said TAHE was responsible for a looming $10 billion black hole in the state’s budget. “TAHE is a budget con that’s turned into a fiscal bomb,” he said.
“The premier will have to cut spending in our schools and hospitals to save this accounting sham from falling over completely.”
Labor hasvowed to abolish https://www.smh.com.au/national/nsw/labor-promises-to-dismantle-state-s-scandal-ridden-rail-corporation-20220622-p5avnz.html the rail corporation if it wins the March election.
Crawford’s report also reveals that the risks that TAHE would not generate required returns were raised several times in briefings to the government in the years after the 2015-16 budget.
Her report is critical of government agencies for their “heavy reliance” on advice from consulting firms such as KPMG. The consulting firms cost taxpayers almost $23 million over seven years.
It lashes Treasury for a lack of transparency over TAHE, noting multiple instances where staff were unable to provide documents. The report adds that government agencies applied higher sensitivity classifications to large tranches of documents than was justified.
“The incorrect or over-classification of documentation as cabinet sensitive delayed this office’s ability to provide scrutiny or independent assurance,” the report said.
Seven people were killed and dozens injured when a Tangara train derailed near Waterfall station, south of Sydney, in January 2003.
The cover-up of a ‘financial mirage’ that has inflated the NSW
budget and may put rail safety at risk
However, Treasury said in a statement that its staff at the time were “mindful of their obligations” under government protocols.
In February last year, the watchdog also accused Treasury ofobstructing its inquiries https://www.smh.com.au/national/nsw/nsw-treasury-accused-of-cover-up-over-controversial-rail-corporation-20220209-p59uy7.html into the rail corporation.
A /Herald/ investigation 18 months ago revealed that the government set up the corporation in 2015 to artificially boost the NSW budget https://www.smh.com.au/national/nsw/the-cover-up-of-a-financial-mirage-that-has-inflated-the-nsw-budget-and-may-put-rail-safety-at-risk-20210528-p57vy0.html by shifting rail expenses into a shell entity. The investigation triggered a parliamentary inquiry and prompted former auditor-general Tony Harris to call TAHE a “vehicle of deception”.
Premier Gladys Berejiklian inspects the first of two metro railway tunnels deep under Sydney Harbour.
How financial engineering turned into a train wreck for NSW
The government was forced to write down the value of TAHE by $20 billion and inject billions of dollars into the rail corporation to make it stack up commercially in late 2021. The corporation, which controls billions of dollars worth of the state’s rail assets, is supposed to turn a profit by charging large fees to Sydney Trains and NSW Trains.
While $5.5 billion was allocated in the last state budget to enable the rail operators to pay the fees until 2026, the report said an extra $10 billion would be needed over the following four years.
In its response, Treasury said the auditor-general’s report provided an opportunity for the agency to “further reflect” on the experience of developing and implementing TAHE.
/*Seems that Treasury has learnt how to do spin speech from TfNSW.*//*