The decision will be one of the biggest debt reduction measures in the upcoming state Budget. It is the first move in ending a long-running saga that has embroiled the State’s finances for years.
Under the changes, the Government will convert TAHE into a non-commercial public non-financial corporation similar to Sydney Trains, NSW Trains and Venues NSW.
TAHE will no longer be a state-owned corporation (SOC). It will not have to make a profit from a public rail system that the government has subsidised for more than 100 years.
The new structure will see TAHE increase its focus on maximising the value of its transport assets, especially surplus land near railway stations that could be repurposed to help solve the State's housing shortage.
The decision to begin the transition to the new operating model this year delivers on Labor’s election commitment to reform TAHE and eliminate billions of dollars of intra-government transactions, which were required under the previous operating model.
It was made after the Government received advice that a further $615 million in funding in 2023-24 was being sought by TAHE under contractual arrangements it has with the Public Rail Operators.
The changes will eliminate this funding requirement. It will also avoid the need for the general government sector to borrow more than $4 billion the former government intended for TAHE under the previous operating model.
Under the new model TAHE will continue to receive necessary funding to maintain a safe, reliable and sustainable network, without accounting trickery.
The Government anticipates the changes will have a budget result impact of negative $384 million over the budget and forward estimates, but interest savings alone on the debt avoided will offset this impact.
TAHE’s new operating model will be implemented in three phases:
- Phase 1: August to December 2023 - The Government will commence transitioning TAHE to not-for-profit status by taking administrative actions under the State Owned Corporations Act.
- Phase 2 - by December 2023 - The Government will introduce an initial wave of legislative changes to allow for the introduction of the new operating model.
- Phase 3 - By June 2024 - The Government will introduce further legislative changes to remove TAHE’s status as a SOC. The corporation will be renamed.
- During the transition, TAHE will partially use its cash balances on hand and operating cash flow to fund its projects and activities, reducing reliance on grant funding.
The introduction of the new TAHE model is likely to see the reversal of the $20 billion write-down that occurred when TAHE began operating, as the State’s rail assets are revalued to reflect the new operating model.
The government will work with the Auditor-General to minimise any delay to the 2022/2023 Total State-Sector Accounts that might result.
Under the previous government:
- More than $5 billion in intra-government transactions were needed to prop up TAHE’s previous accounting treatment.
- A former Auditor-General, writing in the Sydney Morning Herald, labelled TAHE a ‘vehicle of deception’, which hid the true cost of operating the railways from the state’s accounts.
- The Legislative Council’s Public Accountability Committee found that the then NSW government failed to give proper consideration to safety, accountability and risk mitigations prior to creating TAHE.
- Millions of dollars were spent on consulting firms including PWC, KPMG and the Boston Consulting Group propping up the TAHE budget trick.
Treasure Daniel Mookhey said:
“We’re slashing the State’s net debt by more than $4 billion by fixing TAHE.
“This Government prefers to spend the public’s money fixing the state’s essential services, not propping up a budget con that went terribly wrong.
“We’re determined to bring an end to this saga. The State’s reputation for budget honesty was tarnished unnecessarily by the previous government’s decision to use TAHE to hide the true cost of operating the railways from the State’s accounts.”
