Chapter 7
Norfolk Island
7.1
At an early stage in the inquiry, the committee took the view that Norfolk
Island (Norfolk) fell within its terms of reference as an external territory. While
mindful of the significant attention that Norfolk has received from Parliamentary
and other committees over the years since self government was instituted in
1979,[1]
revisiting Norfolk Island's internal financial situation, as well as its fiscal
relations with the Commonwealth, was deemed appropriate and necessary.
7.2
The committee heard from the Honourable Grant Tambling, the
Administrator of Norfolk Island from 2003 to 2007, who submitted to the
committee that:
...Norfolk Island is in urgent need of governance reform, federal
financial support, and the associated necessary regularisation of State
(Territory) and Commonwealth financial arrangements.[2]
7.3
Another witness who gave evidence in relation to Norfolk was an official
representing the Attorney-General's Department, which has administrative
responsibility for Australia's relations with Norfolk. Ms Karen Stewart, Acting
Assistant Secretary of the Territories East Branch, summarised the more recent
findings of the Joint Standing Committee on National Capital and External Territories
regarding Norfolk Island:
...the joint standing committee expressed a view that the Norfolk
Island government was not delivering services—for instance, health, welfare
and the maintenance of infrastructure—to a standard that would be acceptable to
the Australian mainland. The report that the department commissioned at the end
of 2005 from Acumen Alliance, which was publicly released, had the view that,
based on Norfolk Island’s financial circumstances at that time, the Norfolk
Island government was at risk of becoming insolvent.[3]
7.4
The committee was told that the governance model established was and is
premised on the island community of around 2000 people being solely responsible
for the delivery of state and local government services and for most federal
government services and responsibilities. For this reason, the Australian
Government devolved a range of legislative and executive powers to the Norfolk
Island Government to allow it to deliver and fund those responsibilities. The
expectation was that Norfolk Island would also be self sufficient and raise its
own funds from within the Norfolk community to pay for its delivery of
government services and programmes on-island, using 'federal' customs, postal,
revenue and taxing powers devolved to it by the Australian Government. Norfolk
Island was therefore excluded from federal fiscal and taxation arrangements
and from the application of many federal laws and the programmes and services
provided under such laws. This has resulted in expensive and sub-standard
healthcare and other important services. Mr Tambling submitted that
demographics are making a bad situation worse:
Because no Australian income tax applies on Norfolk Island, the
offset is that there are a number of other services, such as medical and
welfare services, that do not come anywhere near the Australian average. So the
vulnerable groups are the elderly, the infirm and many low-income earners. The
population numbers are of concern in that, whilst they are small—as I said,
under 2000 people—they are decreasing. This is generally in the lower age
groups, where people are seeking to make family contributions in education
needs elsewhere in Australia. So the community is ageing, and that in turn is imposing
costs on their budget.[4]
7.5
The Australian Government has had to provide a significant amount of
financial and non-financial assistance to the Norfolk Island Government and
community. Mr Tambling submitted that economic pressures, inadequate local
government and inefficient public administration have brought the long term
sustainability of the current governance model into question.[5]
7.6
The committee heard from Ms Stewart that the Norfolk Island Government
discloses only some of their financial details to the Commonwealth,
specifically those relating to general government revenue and spending. Records
relating to government business enterprises are not disclosed, making an
accurate overall assessment of the island's financial position difficult.[6]
The committee makes a recommendation in chapter 8 (Recommendation 13) to make
improvements in this regard.
7.7
Supplementary information provided by the Attorney-General's Department paints
a somewhat bleak picture of Norfolk Island's finances. Cash reserves at 30 June 2007 are contained in Table 7.1.
Table 7.1—Norfolk Island's cash reserves,
2003–2007
|
|
30 June 2003
|
30 June 2004
|
30 June 2005
|
30 June 2006[7]
|
30 June 2007
|
|
Cash at Bank
|
$10,183,173
|
$10,938,068
|
$11,841,767
|
$19,091,478
|
$11,228,718
|
Attorney-General's Department,
additional information, received 13
August 2008, p. 1.
7.8
These reserves are made up of cash held in both the
Norfolk Island Government revenue fund, cash held by the government
business enterprises and cash held in trust for a variety of purposes, such as
a legal aid fund and environmental matters.
7.9
The Department also provided the committee with details of the Norfolk
Island Government liabilities across the same time series, which are reproduced
in Table 7.2.
Table 7.2—Norfolk Island's total
liabilities, 2003–2007
|
|
30 June 2003
|
30 June 2004
|
30 June 2005
|
30 June 2006
|
30 June 2007
|
|
Total liabilities
|
$5,034,651
|
$5,019,511
|
$6,747,241
|
$25,892,084
|
$19,359,394
|
Attorney-General's Department,
additional information, received 13
August 2008, p. 1.
7.10
The increase in liabilities at 30 June 2006 relates to the recognition
of the $12 million loan from the Commonwealth for the airport runway
resurfacing project and the establishment of Norfolk Air as a government owned
entity in 2006–07, where future ticket sales are recorded as liabilities ($2.5 million
at 30 June 2007).
7.11
Similar to the cash reserves, these liabilities relate to the Norfolk
Island Government’s revenue fund as well as their government business
enterprises. These liabilities do not, however, include accumulated depreciation
on assets, which at 30 June 2007 sat at $31.5 million.[8]
7.12
Mr Tambling suggested that it was time for Norfolk Island to be more
closely aligned with Australia within the construct of fiscal federalism, so
that economic pressures might be alleviated. This would involve the redefinition
of Australia's relationship to Norfolk Island so as to allow access by Norfolk
Island residents to some of the Commonwealth resources accessed by the states
and territories. However, it is clear that islanders are highly protective of
their perceived independence, and that the prospect of being subject to income
tax would not attract the support of Norfolk's small cache of very wealthy
residents, who wield much of the political power.[9]
7.13
This was confirmed by Ms Stewart, who submitted that:
There were two proposals being considered by the Australian
government during 2006. One was to extend all Commonwealth legislation and
programs, and the second part of that was to establish Norfolk Island as a
local government kind of model similar to the Indian Ocean territories
arrangements. The second approach was to set up a sort of modified self‑government
model, where they would have the powers and responsibilities of another
self-governing state or territory but with greater powers of Commonwealth
intervention. During that year, the Norfolk Island government expressly resisted,
essentially, either proposal—and the extension of Commonwealth legislation and
programs.[10]
7.14
Rather dramatically, the Norfolk Island Finance Minister expressed the
view that an extension of Commonwealth taxes to the island would be highly
detrimental:
One of the things that we worry about in Norfolk Island is that,
if all of the Commonwealth taxes and legislation is extended to Norfolk, it
will probably cripple the economy that we have now and probably collapse it and
has the ability to turn Norfolk Island into a community that is likely to be
dependent on welfare. That is not something that we really want for Norfolk
Island.[11]
7.15
Possible opposition notwithstanding, the committee was interested to
read a series of recommendations generated by Mr Tambling at the end of his
tenure as Administrator which were submitted to the former government, and
re-submitted to the current one. These recommendations, a compilation of which
forms Appendix 7, aim to address some of the most significant challenges facing
Norfolk Island. These largely include improvement to and regulation of
governance arrangements, but also go to the establishment of mechanisms to
regulate corruption, corporate, financial and trade activity, and the inclusion
of all Norfolk Islanders on the Australian electoral roll.[12]
7.16
Mr Tambling was forthright in his submission that change is needed, and
in putting his fears for the Island should that change not take place:
I would argue that the arrangements that were set in place in
1979 were probably appropriate at that particular time. But it is now 30 years
later and there have been significant, particularly governance, changes right
round Australia and significant changes in advantages to people, wherever they
live in Australia, through the grants commission formulas. It is a matter of
how much you accept you can transfer to the future generations. As I think I
said earlier, maintaining infrastructure and ignoring capital requirements are
points that really worry me about the reliance on who is going to call the tune
in the future—unless Norfolk Island participates in the more routine financial
arrangements which...would work totally to the advantage of the Norfolk Island
community and the economy.[13]
Evidence from the Government of Norfolk Island
7.17
The Norfolk Island Government made a submission to and representatives
appeared before the committee relatively close to its reporting date. In
addition to submitting two Econtech reports for the committee's
information, the Government made clear its objection to much of the evidence
put by other submitters, particularly Mr Tambling.[14]
7.18
The Government's submission cited education, healthcare and social
welfare as areas in which the conditions on Norfolk Island had been 'ignored or
misrepresented' by witnesses.[15]
When analysed alongside 'remote Australian communities of similar size', the
submission argued that services on Norfolk Island compared favourably.[16]
While acknowledging the funding assistant provided by the Commonwealth, the
submission argued that most funding was used 'to employ Commonwealth public
servants to deliver programmes of national significance.'[17]
7.19
The submission went on to criticise restrictions on borrowing imposed
by the Commonwealth, and suggested that the extent of Commonwealth support for
infrastructure projects was inadequate:
The Commonwealth has indicated on many occasions its
unwillingness to invest in major infrastructure projects or social programmes
in Norfolk Island, and has never agreed (as required by the Norfolk Island
Act) to any borrowings by the Norfolk Island Government, other than from the
Commonwealth itself. Faced with this situation, the Norfolk Island Government
has risen to the challenge of maintaining sustainability and growing the
economy through the use of innovative methods to ensure service delivery to the
people of the Island community.[18]
7.20
In responding to criticism on the Norfolk Island Government's level of expenditure
on infrastructure, the Minister for Finance, the Hon. Neville Christian MLA,
elaborated to the committee:
... in 2008-09, 31 per cent of all of our expenditure will be on
infrastructure and capital items. Some of the analysis provided to your
committee has totally missed this point by focusing only on capital expenditure
in the revenue fund. That fund is essentially the clearing house through which
we fund our major service delivery areas of education, social welfare, health
and tourism promotion. The majority of the infrastructure and capital
expenditure occurs in the government’s business enterprises. In summary...
budgeted expenditure for this year includes the following: infrastructure
maintenance, $3.2 million, which is 10.7 per cent of total expenditure; new
infrastructure, $3.25 million, which is 11 per cent of total expenditure; and
capital expenditure, $2.7 million, which is nine per cent of total expenditure.[19]
7.21
The Government submitted two reports it commissioned by economic
modelling firm Econtech, in an attempt to demonstrate Norfolk's
financial sustainability. The first of these reported in September 2006, and
the second in February 2008. The second report noted that there had been a
'significant improvement' in net operating cashflow since it was identified as
a problem in 2006. This was that 'new policies and initiatives [were] heading
in the right direction'. However, it went on to say that cashflow 'still falls
short of likely ongoing investment needs (with an average budget hole of around
$0.4 million estimated over the three years to 2010–11).[20]
7.22
Of the Government's response to the report and cashflow shortfall, the Finance
Minister of Norfolk Island informed the committee:
We reformed our taxation system, abolished some of our
regressive taxes and replaced them with a broad based consumption tax. Econtech
gave us a number of options on how we could fix the administration’s income and
we, if you like, hybridised it. We took a slightly lower rate of GST than they
had identified and combined that with achievable increases in tourism to
deliver the overall financial result that we needed for Norfolk Island. Econtech’s
most recent review of the situation on Norfolk Island, which, as I have said,
was conducted in February 2008, tells me that we need to put aside about $3.7
million a year, going forwards—this is until about the end of financial year
2011. Currently, we are putting away about $3.3 million. That is our net operating
cash flow. So, on a yearly average, going forwards I am only $400,000 a year
short of meeting the economic target set for us by the Econtech modelling.[21]
Conclusion
7.23
While the committee notes the responses put forward by the Government of
Norfolk Island, a number of concerns remain largely unaddressed. The most
notable of these include the longstanding and widely acknowledged shortcomings
in relation to governance arrangements, which have a direct effect on service
provision. The committee is concerned that the level, and in particular the
accessibility, of service provision on Norfolk may not be adequate.
7.24
While the Government's submission used the Econtech reports to
demonstrate financial sustainability, the committee remains unconvinced. As
outlined above, even after the Government acted to remedy the situation, Econtech
took the view that investment on Norfolk was inadequate.[22]
This augurs poorly for Norfolk's sustainability under existing arrangements,
and raises doubts about the ability of the Government to provide services at
their current level, let alone improve them.
7.25
The committee understands that Cabinet considered a raft of significant
reforms relating to Norfolk Island in 2006, but that matters did not proceed
beyond that point. The committee therefore recommends in chapter 8
(Recommendation 12) that the recommendations at Appendix 5 be read together
with the findings of the relevant 2003 and 2005 reports of the Joint Standing
Committee on the National Capital and External Territories[23]
and that this form the basis of a Commonwealth Government initiative aimed at assisting
the Norfolk Island Government to redress some of the major challenges that face
Norfolk Island.
7.26
Whilst the committee has made related recommendations, it feels somewhat
constrained by the fact that it has not been able to visit Norfolk Island.
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