It’s
not a plan for the future.
This
year’s State Budget is base jumping without a parachute.
In
this current year 2018/19, the government will spend $380 million more than it
will receive. That’s what the Budget papers indicate.
Yet
Treasurer Gutwein tells the world the surplus will be $41 million. What he
omitted to say is that his surplus is an operating balance figure. The
operative word is ‘operating’. It only includes operating expenses. It doesn’t
include capital outlays on infrastructure. Nor does it include additional
capital contributions into government businesses or Federal housing loan
repayments. They all come out of the same pot.
Include
all outlays and the deficit this year will be $380 million.
Over
the next four years Mr Gutwein’s operating surpluses will total $567 million. Including
all outlays however gives cash deficits of $1.2 billion.
The
spin says ‘surpluses’ will amount to $567 million. The reality indicates actual
cash deficits will total $1.2 billion.
Infrastructure
spending is front and centre of this Budget.
For the Treasurer to then use a budget performance measure that excludes
the amount of infrastructure spending is a tad disingenuous.
Disingenuity
however is the least of our problems right now. More serious is that structurally
our Budget is unsustainable. Mr Gutwein might characterise it as “maintaining
the momentum”. In a sense he’s right. We’re in a luge heading downhill.
Mr
Gutwein was quoted as saying surpluses were “an important element of our
responsible financial management” — so the government has cash on hand to deal
with emergencies; to “sandbag” the economy in uncertain times. If Mr Gutwein
believes that, he doesn’t understand his own financials. There will be no cash
on hand. It will all be spent. Cash supposedly sitting in special deposit
accounts will all be internally borrowed and spent by 2020/21 necessitating the
need to start operating a line of credit with Tascorp, the governments finance
arm.
The
government is a self-insurer. It sets aside cash to meet future liabilities,
personal injury and medical liability for instance. In four years’ time there is
supposed to be $314 million in that account. How much cash will there be? Zero.
If an insurable event occurs the government will have to borrow. There won’t be
any spare cash on hand as Mr Gutwein says.
It’s
like spending the Xmas Club account and the legacy Grandma left for the kids,
before pulling out the credit card. Debt is fine. As the government points out,
debt is needed in a growing economy. But there is no plan to pay interest. In
four years’ time the interest will be $35 million per year. It will simply be added
to the debt. Even the internally borrowed amounts will need to be repaid. And
when they are it will need to come from current revenue at the time.
Infrastructure
spending is like motherhood. Criticise it at your peril. “Investing for growth”
is the latest slogan. But where are the returns from this investment? There’s no
plan to capture any of the increased value. Tiny increases in payroll and land
tax but not enough to cover the interest. If the government doesn’t capture any
of the returns from growth how it is supposed to continue to operate?
The
Federal government is committed to running a surplus which simply means it
plans to take more out of the economy that it puts back. Which puts extra
pressure on state governments. The idea that a state government such as
Tasmania can run cash surpluses and service our growing needs is fanciful
nonsense. That is the reality we must face. Forget about Mr Gutwein’s paper
surpluses. They are meaningless. We are destined to run cash deficits for quite
a while. This is neither good nor bad. It’s the reality. Facing reality is the
first step on a recovery journey.
The
government’s record on infrastructure spending is pretty ordinary. Over five
completed years since assuming office in 2014 the government’s underspending on
infrastructure has been $508 million. The 2017/18 year was a record breaker.
The Budget proposed $610 million in spending. The outcome was $436 million, a
shortfall of $174 million. One cannot be too confident about this Budget given
the government’s record. Infrastructure is the first choice for any spending
deferral. The record spend in this Budget reflects the build up of projects as
the government has deferred projects in order to preserve cash. It’s a
piecemeal approach not part of a suitably funded co-ordinated plan. Just like
the hospital rebuild. K Block is almost ready. But that will be like finally
taking delivery of a new car ordered ten years ago which we can’t afford to
fill up with petrol. Not yet anyway. We’ll staff the place when we can. Give us
a break. We’ve only had ten years notice of the impending building completion.
Little
more needs to be said about the government trying to run a health budget that scarcely
differs from the previous year’s actual spending. There is now widespread
understanding of the illusion the government has tried to construct, that by
comparing this years’ budget with what was proposed a year ago and which was soon
found to be severely wanting, does not mean extra spending. Extra spending to
Joe Public means extra compared to what was actually spent.
Commonwealth
Grants Commission data reveals the state is not spending as much to provide comparable
services to other States as the GST equalisation formula allows. It’s not
because we’re more efficient. Government policy is the reason. We are
continually playing catch up, repaying internal borrowings and building long
life assets from current income, whilst on the other side of the ledger not
raising as much revenue as we should.
Mr
Gutwein’s bravado and bluster needs to be quarantined. It is infecting the body
politic. It is masking the true state of affairs and preventing the community
from having a sensible discussion. Our current budget system is unsustainable.
(Published in The Mercury 25th May 2019)