Unsustainable budget

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)