Thursday, 3 January 2019

Lies, damn lies and budgets

A new year provides the opportunity to start with a clean slate. Health Minister Ferguson missed his chance. His Talking Point article Rolling out the health fix for growing needs (published January 2nd) continued with the disingenuous claim that the current government is spending” an additional $757 million over the next 5½ years”.

Whilst not an outright lie, the claim nevertheless fits comfortably into the broader category of a Trumpian untruth.

Take the budget before last, the 2017/18 budget, specifically the figures for Tasmanian Health Service which accounts for the bulk of government health spending. THS’s actual spending for 2016/17 was $1,525 million. That year had all but finished when the 2017/18 budget was prepared but the budget figure selected for 2017/18 was $1,460 million. A health budget $65 million less than the year about to finish? With health inflation running at anywhere between 3% and 6% per year, the government decided to spend 4% less.

The time soon came when the government had to concede to realism. Half way through the 2017/18 year, when the Revised Estimates were published THS was allocated another $53 million, still below the prior year’s spending.

But only the budget year was increased. The remaining three years in the forward estimates were not upwardly revised. If the base year is too low, the ensuing years in an area like health are certain to be too low as well. But no one audits the figures. The government can put whatever it likes into the Forward Estimates. It generally does.

The $53 million increase in the Revised Estimates wasn’t near enough. When the year 2017/18 ended and the dust finally settled, THS’s spending for 2017/18 totalled $1,621 million, $161 million more than budgeted.

The extra amounts supposedly going into health are not because the government has changed priorities. It’s to remedy the grossly negligent budgeting process. Rather than admit this the government brazenly spins it as a sign it is responding to community concerns and is pumping more into health.

So, what if the government was more realistic with its health budgeting? It would mean adding at least another $100 million of spending in the current budget year and in each year of the forward estimates.  Almost all the surpluses would disappear.

As it is, surpluses give a misleading guide as to the sustainability of the system. It’s crucial to understand a surplus doesn’t mean government is spending less than it is receiving. Over the next three years the government will spend far more than it will receive. The word ‘surplus’ is a misnomer. Not all outlays are included. If State budgets were produced in the same form as Australian Government budgets which include all outlays, everyone would be able to clearly see that we may have paper profits but we have cash deficits. A profit however described is not necessarily a cash surplus. The idea that the government can now take some risks is based on a false premise. There aren’t cash surpluses. Without cash surpluses how do we move ahead? Borrow more? How then do we service the borrowings?

In recent years the dominant feature of the budget system has been chronic under budgeting for health which is largely remedied each year by slashing budgeted infra structure spending.

Sure, we may now have a more confident growing economy. But does this mean more revenue for the State government. In the longer term, maybe, depending whether we fix the narrow base of our tax system and spread the burden more equitably. In the short term however, any growth in government revenue will certainly lag the extra demands for government services. Government businesses are reaching their borrowing limits, hence more borrowings to fund dividend payments to government are unlikely.

Any flickers of hope of making changes to our system have largely been extinguished. Endemic tribalism and myopic leaders have seen to that. A better understanding of our predicament is a prerequisite for choosing a future path.

The conventional view is that the Australian Government is constrained by ongoing deficits, while the State government is humming along with surpluses. These surpluses as explained above are largely illusory. So too are the federal deficits. The deficits largely arise from capital payments to the states. The states include the capital grants as revenue thereby increasing states’ surpluses. It’s an accounting convention that the grants be treated this way. But it gives a misleading impression, that the Feds are poor managers and Treasurer Gutwein is a maestro.

Capital payments shouldn’t be construed as a burden to the payer and a windfall to the payee. It’s a partnership arrangement, a crucial part of Federal-State relations.

We need a more sensible way for the Australian government to finance capital spending by the states.

Governments around the world, after handing the almost exclusive right to create money and credit over to private banks, have scarcely given a second thought to bailing out those banks when their greed created such havoc.

It’s time the public reclaimed its right to create some money and credit for public purposes. Establishing a better way of providing and accounting for state government infrastructure funds would be an ideal place to start. We need budgets that are fiscal plans rather than political statements and reportable outcomes that explain rather than mislead. The task is not beyond us.

(Published in The Mercury 4th Jan 2019)

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