The new ACT Government should be very careful on the fiscal front. But it does not appear as if it will be.
Labor may argue over the detail of the figures, but the fact remains that when the Liberals came into office under Kate Carnell in 1995, ACT finances were in a pretty parlous state. Having been handed an almost debt-free territory at self-government in 1989, the Follett Labor Government and the Liberal-led Alliance Government under Trevor Kaine indulged in a spending spree. That was bad enough, but it was no matched by increased revenue.
The Carnell Government – for all its other faults – put the territory into the black and redefined public finance under the accrual accounting system to make public finance more transparent.
Now, within a short time of being sworn into office, the new Labor Government is already squandering the legacy. Treasurer Ted Quinlan is suggesting that return on investments might not be as high as earlier thought and therefore a deficit might be inevitable. The commitment to not running a deficit has now been watered down. In the lead up to the election here was no suggestion of “”reviewing” revenue – with its implication of raising taxes.
But now in office, fiscal responsibility is about to be thrown out the window.
Mr Quinlan said, “”There will be times when there’s a choice of having a small deficit maybe in one year or reducing services to somebody who really needs it. Now what we want to do is take the common-sense approach and say in the economic cycle over the long term we will be in the black.”
That is not the common-sense approach. It is the road to fiscal profligacy and government irresponsibility. For every dollar spent beyond the balanced Budget now we have to pay back with interest later on. Mr Quinlan is displaying a cavalier approach to public finance which does no-one any good in the long run.
The challenge for Mr Stanhope is not to get carried away with social programs in a way that threatens the Budget surplus. Mr Quinlan is in danger of running up the credit card before he has earned the cash to pay for it. Mr Quinlan says in the long term he wants to be in the black. That is a fine aim, but it will not be achieved by immediately going into the red with the pious hope that in the longer term it can be turned around. He should first run a few surplus Budgets and then say there is enough money in the kitty to run a deficit. If he starts in the first year by running a deficit – however small – he will find it difficult to claw back to surplus.
So early in the term of the new Government the cliché that the cupboard is bare therefore we have to look at revenues or run a deficit is extremely alarming. If Labor is to look at the revenue base, we should have been told about it before the election. The excuse that the ACT’s overseas investments are having a lower than expected return is no excuse. We knew before the election that the events of September 11 were likely to affect revenue. And if there is a shortfall in revenue, the new Government should look at ways of cutting spending before embarking on either deficit budgeting or increasing taxes.
At present the ACT has a lot of advantages over other parts of Australia for business: a highly educated workforce; good health and education services for families, low crime, good infrastructure and fairly cheap and abundant land. These advantages should not be squandered by higher taxes or imposing a burden of financing a deficit.