Hairy palms and letters to the editor

I haven’t been posting on Troppo much lately, mostly because I’m pretty fully occupied establishing with partners a new private legal practice in Darwin, Melbourne and Adelaide by early January.

However I haven’t been able to restrain myself from indulging in the first sign of madness, namely writing letters to the editor of the local Northern Territory News.  They mostly seek to debunk its current lowest common denominator populist crusade against the entirely responsible economic policies of the new Mills CLP government.  The NT News currently sees itself as the propaganda arm of the ousted Labor regime, which is rather bizarre given the biases of the Murdoch press elsewhere in Australia.  Unfortunately the editor didn’t see fit to publish my last effort, and he probably won’t publish this one either, so I’ll post it here instead:

Dear Sir

Although there are valid concerns about some individual spending cuts announced in the Mills CLP government’s mini-budget, its overall direction and settings are in my view modest, responsible and appropriate. As many would know, I am anything but an uncritical CLP apologist.

The NT News editorial of Thursday December 6 quotes the expected debt to revenue ratio in 2016 as being 73%, and notes that a widely accepted measure of a healthy economy has that ratio at 60%.((The figures I’m using are non-financial public sector debt, which includes GBEs like Power and Water and NT Land Corporation. This figure is the one generally used by the World Bank and OECD in comparing countries’ comparative levels of indebtedness. It’s even more apposite to use that measure when examining the NT’s fiscal position, given that the Henderson Labor government was massively subsidising PAWA from recurrent revenue in order to keep power charges artificially low for electoral purposes. ~KP)) However, what the editorial fails to explain is that even this less than healthy 73% figure is achieved only AFTER factoring in the effects of the CLP government’s mini-budget measures. Had the government not acted, that ratio would have stood at 100% of revenue (see 2012 Budget Paper No. 2 Table 2.10, page 27 and CLP mini-budget at pages 100-101) which is significantly in excess of the worst NT budget position reached in the 1990s in the wake of Paul Keating’s “recession we had to have”. That is still a fraction of the debt levels of basket cases like Greece and Spain, but it is worrying just the same and certainly required prompt corrective action.

It simply isn’t true that the NT government would get away with returning the budget to surplus over a leisurely 10 years as your editorial suggests. The NT gets 80% of its funding from the Commonwealth, most of it from GST revenue generated across the nation. The rest of Australia would not sit idly by while the NT blithely continued running up debts on the “Visa Card” while others are paying the interest bill. Just about all other states and territories already have programs to return their own budgets to surplus by 2014.

Even after the CLP’s mini-budget measures the NT will still have a budget deficit of just under $60 million in 2016. However, had the government not acted, the annual deficit would have stood at around $250 million in 2016 on the Henderson government’s own figures((In fact according to the Pre-Election Financial Outlook the projected deficit in 2015-16 was actually $475 million.  The CLP’s mini-budget reduces that to a modest $53 million. ~KP)). In other words, far from being extreme or excessive, the mini-budget measures are responsible and gradual. Your attempted comparison with the “ultra-conservative” ideologues of Queensland actually emphasises that fact. The Newman government’s recent cuts to the Queensland public sector amounted to about 6.8% of total employee numbers, while the Mills government’s mini-budget cuts are less than half that at just 3%.

Regards

I should make a few additional points for non-NT readers:

1. I acknowledge that long term public debt is not bad per se, at least when employed to build necessary productive infrastructure.  Moreover, around $1.2 billion of the previously projected $5.2 5.6 billion dollars net debt WAS for long-neglected power and water infrastructure.  However the previous Labor government was also subsidising everyone’s power bills from recurrent funding to the tune of almost $1000 per household per year, a strategy explained wholly by short term electoral considerations and not at all by sound economic management.
2. Nevertheless, had it been in government and facing a close election the CLP would probably have done likewise.
3. Similarly, had it survived the recent NT election, Labor would certainly have emulated the CLP and immediately hiked power charges by 30% as the CLP has just done.  We know this because of a leaked letter from former ALP Treasurer (and now Opposition Leader) Delia Lawrie, which assured PAWA that it would bring power charges up to more “commercial” levels after the election.
4. The NT News has been simultaneously creating the impression that there’s no need at all for the sorts of cuts the CLP government is making, while conceding in the next breath that maybe they are necessary but should be done much more gradually. It’s certainly true that there’s no reason in strictly economic terms why power charges could not have been increased by 10% per year for 3 years rather than in a single fell swoop.  But there’s a very good political reason. No government hoping to retain power would increase electricity charges in the run-up to an election.  Politics 101 says that a new government should do the fiscal “heavy lifting” in the first year of its term and then aim at good news budgets leading into the election.  Again the ALP would have done likewise had it retained government, although it would not have had the CLP’s  luxury of blaming its predecessors for the problem.
5. On current economic data the NT economy is very healthy, if not quite in boom times.  Now is certainly the time to do the “heavy lifting” of moving the budget back towards surplus. However economic management remains quite a tricky judgment nonetheless. On one hand, the huge Inpex gas project is pumping money into the local economy, the housing market is fairly strong and unemployment is low.  But we have a tiny, narrowly-based economy.   The critical tourist market is very flat (mostly because of the high Australian dollar) and several mooted mining projects have been cancelled due to falling mineral prices.  Operations at Ranger uranium mine have been wound back and the future of the huge bauxite mine at Nhulunbuy is in question.  The Territory’s economy is much more heavily based on public sector expenditure than any part of Australia except the ACT. There is a real risk that excessively tight fiscal settings could push the economy into recession if they’re not careful, particularly if the Euro-crisis and/or the US “fiscal cliff” end badly.  Fortunately, and unlike the Gillard government federally, the CLP has not backed itself into a rhetorical corner by promising a short-term local surplus come what may.