The draft ACT Budget brought down this week marks a significant achievement by the ACT Government over the past five years. The surplus Budget (in fact the surplus is so small we should talk of a balanced Budget) indicates that the ACT is paying its way for the first time since self-government. And the projected surpluses over the following three years indicate that the ACT can start reducing debt incurred in previous years.
The fiscal frugality has come at some cost. Canberrans have noticed a falling in standards of maintenance of streets, parks and waterways in the past five years and some cuts in health and education service delivery. The essential difficulty was that the ACT got self-government right at the time the Federal Government was tightening spending on the ACT anyway.
The Carnell Government can be questioned over some spending priorities, but it has done well on fiscal fundamentals. It means the community will be better off in the long run because it will not be paying taxes to fund debt, rather the taxes will go to fund things that government should fund: education, health and transport.
The draft budget contains some modest increases for education, health, infrastructure, police and cleaning up. There is welcome funding for a research and development fund and $18 million extra of on-line and electronic service delivery. The latter is more an investment than spending because efficient delivery of government services will have valuable spin-off for businesses and citizens.
The good news on the tax front is that there will be no new ones and the payroll tax threshold will be lifted to help small business.
The Budget surplus relies, however, on two external factors. The first is a general increase in economic activity giving rise to greater revenue from payroll tax and stamp duty. The second is an improvement in grants from the Commonwealth.
The Budget predicts and increase in revenue of 3 per cent. If anything goes sour in the economy, that figure might not be reached. However, in past years the ACT Treasury has proved to be a fairly accurate predictor. Last year the actual position was better than predicted in the Budget. The Government has done well to resist the temptation to spend the extra money. At some stage, though, the Government should look at the tax mix. There is too great a reliance on gambling taxes and stamp duty.
Commonwealth funding is more problematic. The ACT is relying on promises by the Commonwealth arising from the deal over the GST. The changeable nature of the federal-state financial relations has sent the ACT on a roller-coaster in the past. Stability is not guaranteed.
The draft budget process carries with it some difficulties. It erodes the Westminster system in which Governments should be judged o their Budgets. Politically, however, it is easy to see why the ACT Government adopted the recommendation of the Assembly committee on governance to have a draft budget scrutinised by other Assembly committees. It will force the cross-benchers’ hands early. They will not be able to blackmail a minority government into funding pet projects upon pain of losing the whole Budget.