If you do not have the money for pet projects you have to beg, borrow or steal it. The ACT is trying to do all three. It has successfully begged from the Federal Government and it is going to borrow, which is tantamount to stealing from future generations.
Begging is a fairly public event, but the stealing from future generations has to be covered up or at least disguised. And that is precisely what has happened.
This year’s and last year’s Budget papers are quite open on the begging issue and reveal how successful the ACT Government has been at it. Last year it predicted Commonwealth payments to the ACT would be $533. As it happened the Commonwealth came up with an extra $41 million. Perhaps the ACT does matter after all, especially in the context of Federal Labor having six our of eight second-tier governments held by their conservative opponents and an election in February for Federal Labor’s most friendly face around the COAG table.
(Incidentally, I have been trying to come up with a shorthand for state and territory governments without ignoring the territories. Better suggestions than second-tier will be gratefully received and fed into the Australian language through these columns.)
The $41 million, incidentally went as follows: $12 million to cutting the deficit, $10 million to spending and $19 million to hold tax rises back, according to ANU economists David Hughes and Robert Albon . In other words, $29 million went to buy votes in February.
The Budget got a lot of favourable comment at the time, and there has not been the sort of timely and detailed analysis that you would get of a Federal Budget for several reasons: less interest, fewer people looking at it, and less informative and honest papers.
Paul Keating to his credit as Treasurer (with a lot of help from Treasury officials) did an enormous amount to ensure Federal Budget papers were informative, internally consistent and honest if optimistic. From 1983 on he transformed the classic Budget papers that translated into “”Smokes, beer up, new tax slug” into statements of long-range fiscal policy.
The ACT’s papers, on the other hand, are hard to decipher, especially this year. But it seems they have played a long-range trick.
In projecting what will happen to ACT finances in the next four years (assuming unchanged policies) the Budget papers cheated. They indexed revenue in the most generous way possible, but indexed less than half of expenditure and then in a conservative way.
The result has made no difference in 1994-95, but in subsequent years the Budget papers give a far rosier picture than the reality.
When journalists were presented with the Budget wad of papers some of us asked what are these mysterious “”outturn prices” that appear on the table summarising expenditure and receipts over the next four years. Then did not think much further of it.
However, the answer to that question shows that the table that came with the Budget papers is misleading. It shows the gap between expenditure and receipts (the financing requirement) declining over the four years from $65 million in 1994-95 to $43 million in 1997-98 (see Table 1). The $65 million in 1994-95 is to be met by consuming the remaining $28 million of ACT reserves and borrowing the remaining $36 million.
In subsequent years the difference will have to be borrowed. $206 million will be required in total, according to the Budget figures.
However, this is if you use these mysterious “”outturn prices”.
“”Outturn prices” index revenue at the consumer price index, but do not index expenditure on wage and salary costs at all and index other expenditure according to another economic beast called the non-farm GDP implicit price deflator (we’ll just call it the beast index). The beast index is somewhat less than the consumer price index. The beast index averages manufacturing, export, import, raw materials and some other indexes.
There is some justification for using the beast index, the CPI and no indexing at all, provided you do it consistently.
Not indexing wages is smart. If you do it will only cause yapping unions to demand that increase irrespective of economic conditions. And there may be some justification for using the beast. But mixing all three measurements in one table is misleading. How misleading is perhaps best calculated by using 1994-95 prices throughout. You can do this using information in Budget Paper No 2.
If you do that the Government’s projected shortfall of $43 million in 1997-98 becomes $106.6 million, a difference of $63.6 million. The Government’s cumulative debt of $206 million in reality is $330.7 million. And that is in 1994-95 prices, so it will be worse than that.
Without any policy changes by 1997-98, we could easily be borrowing to service the debt (instead of restricting borrowing to productive capital only). The Victorian and South Australian solutions.
Ultimately, someone must pay, but the bill will not come in until well after February’s election and probably not until most of today’s Government MLAs are drawing superannuation.
That reminds me of another minor scam in the Budget papers. In summarising revenue, the Government includes payments from the public enterprise sector for superannuation and then is very sloppy about putting it back on the projected expenditure side. Moreover, I suspect that this fiscal sleight of hand may have been done with more than just the enterprise sector.
With apologies to Disraeli: there are lies, damn lies and accounts.