ACT Govt deficit

Tony Harris’s ID on Troppo is not yet set up, but I reproduce his latest column for the Fin below the fold.

Some aphorisms have no place in government. Thus, honesty is not the best policy: it is better to hide the unpalatable. This desire to camouflage nasty truths explains why the Australian Capital Territory Government tried to make a custard tart out of rotten eggs in its budget papers for 2005-06.

It is clear enough that ACT government finances for its 324,000 citizens are under stress, how else can one classify an expected operating deficit, using government finance statistics, of $356 million, more than a thousand dollars a person? But ministers do not describe the budget that way. They prefer to accent the positive by stating that the government will achieve a “balanced budget on average, over the next four years.”

This four-year forecast is meant to soothe concerns. It is also meant to distract attention. But benign medium term forecasts can mislead. The previous ACT budget said that the 2005-06 deficit would be a more manageable $73 million. That was out by a factor of five.

For larger governments, a deficit of $356 million might be worrying but it would not be calamitous. The Commonwealth, seemingly drowning in revenues, would hardly notice a blip of this size. In its mid-year review of the Commonwealth’s 2005-06 budget, expenses were increased by nearly a billion dollars. This hardly drew comment. But, for the ACT, its forecast deficit is sizeable. If the national budget had a similar per capita outcome, it would have a $22 billion deficit.

And, in spite of soothing forecasts, the ACT’s problem seems persistent. Using the agreed uniform presentation of government finance statistics – rather than the quirky data presented at the front of the ACT budget papers – the operating deficits forecast for the next three years total nearly $800 million, equivalent to $10,000 a family. It would be higher except that the government figures assumed that the average increase in expenses could be held to less than three per cent a year. These estimates might also underestimate the problem. Over the last three years, annual government spending increased by an average of 6.5 per cent.

You might think that increasing spending by over six per cent a year has contributed mightily to the budget problem. After all, spending is somewhat influenced by government decisions. But ministers do not admit mistakes. They have refined another parental adage for use in government: do not accept responsibility for your own actions, unless plaudits are involved. Thus, after bathing in revenues from a housing boom, they now blame the budget deficit on lower conveyancing revenue.

Another cause of the budget problem is accounting. The Australian Bureau of Statistics, the arbiter of accounting rules used by governments, has determined that receipts from the lease of land owned by the ACT government – typically of the order of $180 million a year – are not operating revenue. Because government land is an important earner for the ACT, excluding their revenues from the operating results has increased the deficit on operations. But do not have too much sympathy, even if these were included, the ACT operating deficit would be $176 million, $2200 a year for each family instead of $4400.

At least the government has the advantage of a strong balance sheet. As at June 30, 2004, it had a $459 million buffer to fund its deficits. But then, it needs all of these strengths because ministers are not accustomed to cutting spending, something they will have to do to subdue an uncontrolled budget.

Increasing taxation is another, but unattractive, option. We learn this from the Queensland government. Parents might have told their children that comparisons can be odious, but if comparative data benefit politicians, they will publish them. So, we read in the Queensland budget that the ACT raises $2382 per capita in taxation, compared to the Australian average figure of $2135. Using this measure, the ACT is the second highest revenue raiser, a difficult platform from which to launch more taxes.

ACT residents might not yet know much about their government’s budget problems, but they soon will.

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Stephen Bounds
15 years ago

As an ACT resident, the seemingly precarious state of the budget concerns me a lot. However, I do feel it’s a little unfortunate that Tony chose to scream about a deficit figure of “$356 million!” when clearly the more accurate operating deficit figure is $176 million.

It makes me wonder what else has been talked up or played down to create the big headline. For example, the ‘quirky’ ACT budget government papers predict an operating deficit of $91m, which is half of Tony’s figures again!

Of course, the ACT government is hardly an unbiased source either, so I’d love to know where Tony has got his numbers from, so that I can view them both and make up my own mind.