SMH - Adele Ferguson and Matt O'Sullivan -
133 CommentsThe NSW government is scrambling to keep a controversial $40 billion rail corporation from unravelling and exposing it to a multibillion-dollar hole in the state budget.
NSW Treasury was in turmoil on Monday night after the NSW Auditor-General refused to sign off on the state’s finances unless a solution was found to what she described as “significant accounting issues”. It comes the same week as the government is scheduled to hand down its half-yearly budget update.
In a dramatic turn of events, Auditor-General Margaret Crawford also pulled out of an appearance scheduled for Thursday at a parliamentary inquiry into the Transport Asset Holding Entity (TAHE) because of the need to delay signing off on audits of the rail corporation and the state’s finances.
She is already almost two months late in signing off on the state’s finances due to “major outstanding matters” with TAHE.
The growing concerns about TAHE are a major embarrassment for the government and new Treasurer Matt Kean, who has inherited the debacle.
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Former NSW auditor-general Tony Harris, who described the rail entity as a vehicle of deception, said it appeared that the state’s auditors want Treasury to “correct TAHE’s sham accounting”.
“If the government agrees to remove the deceit, it would help show that integrity is important,” he said.
Treasury and the Auditor-General have been at loggerheads for months over TAHE, which a Herald investigation has revealed was set up to inflate the NSW budget by billions of dollars.
The Herald understands
from a number of sources that Treasury officials spent last weekend
trying to devise a solution that would satisfy the Auditor-General
and limit the cost to the state budget.
Treasury warned in a confidential document in February that any attempt to abolish TAHE would create a $14.6 billion hole in the budget over the next 10 years.
Shadow treasurer Daniel Mookhey said the government’s decision to create TAHE was looming as NSW’s biggest ever budget disaster. “TAHE is the type of budget trick people expect from a banana republic – not from the biggest state in the federation,” he said.
Several sources, who requested anonymity, said the Auditor-General had made clear to the government last week that she did not accept Treasury’s financial modelling for TAHE. It had the option of her issuing a qualified audit of the state’s finances and highlighting material and significant issues with TAHE, or it could try to find an acceptable solution.
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The high-level sources said Treasury was now trying to devise a new model, including revising the fees it would charge Sydney Trains and NSW Trains for the use of tracks and other rail assets.
It comes weeks after former Transport secretary Rodd Staples told a parliamentary inquiry that he was so concerned about the risks to rail safety from TAHE last year that he met separately with then-premier Gladys Berejiklian and Ms Crawford. He was sacked without cause as Transport chief in November last year.
Treasury secretary Mike Pratt and several senior officials, as well as Transport secretary Rob Sharp, are scheduled to appear on Thursday at the inquiry into TAHE.
Greens MP David Shoebridge, who is chairing the inquiry, said it was unheard of that the government hadn’t been able to publish a set of accounts by mid-December.
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“We are looking to cut through the government’s spin in this week’s hearing and find out what, if any, major differences there are between the government and the Auditor-General that explain the delay,” he said. “This is a $10 billion self-inflicted headache for [the government].”
Under accounting rules, TAHE – which controls $40 billion worth of the state’s rail assets, including trains and tracks – has to show it is truly independent of the government and will turn a profit. If it fails to do so, it could cost the budget billions of dollars a year.
However, to turn a profit it needs to charge Sydney Trains and NSW Trains access fees at a commercial rate, which will weigh on the state budget.
A highly controversial report by former KPMG partner Brendan Lyon last year found that once TAHE started earning revenue and charging a commercial rate, the cost to the budget would far outweigh the benefits.
A spokesperson for the Treasurer said he looked forward to receiving the Auditor-General’s opinion once her work was complete, but it was not appropriate to comment further until that was done.
A Treasury spokesman said it was working with the Auditor-General’s office on “these complex accounting matters”.
A highly controversial report by former KPMG partner Brendan Lyon last year found that once TAHE started earning revenue and charging a commercial rate, the cost to the budget would far outweigh the benefits.
A spokesperson for the Treasurer said he looked forward to receiving the Auditor-General’s opinion once her work was complete, but it was not appropriate to comment further until that was done.
A Treasury spokesman said it was working with the Auditor-General’s office on “these complex accounting matters”.