Thursday, 19 November 2020

Budget denialism


WHEN Premier Gutwein undertakes not to sugar-coat the message, you can guarantee that’s what he will do. Introducing the 2020-2021 Tasmanian state budget he said: “This year the deficit will be $1.1bn, before improving to a deficit of $281m in 2021-22. Importantly as our economy returns to growth, there is a pathway back to the black with a return to a modest surplus in 2022-23.”

Announcing “the largest and most significant infrastructure program in the state’s history” then failing to include that spending in the deficit calculation is deceptive. The actual cash deficit for this year will be $2.1bn. In 2021-22 the cash deficit will be $1.07bn followed by $656m the year after. That’s a whole lot different to what the Premier might like us to believe. The Premier uses the generic term “deficit” for the Net Operating Balance figure. As its name suggests the latter only includes operating expenses, wages for instance, not capital outlays, roads and schools for example. This is not a semantic quibble. The point that needs to be understood is that a positive Net Operating Balance does not mean there will be cash surpluses to reverse the growth in net debt. There is little prospect of that occurring any time soon.

“In this budget we will continue to leverage our strong balance sheet to stimulate our economy,” the Premier said. More sugar coating. The balance sheet at June 2020 was the smallest for more than 15 years and it’s about to get a whole lot smaller. By June 2021 the government’s net worth will be $6bn. Of that figure, $4.7bn is the net worth of government businesses. Aside from them the government’s net worth will only be $1.3bn, smaller than the Hobart City Council. So let’s not pretend we have a strong balance sheet when a cursory glance reveals the exact opposite.

From 2014 to 2018 the government pursued a policy which it pretended was budget repair. Net debt was relatively stable. But it was a mindingthe-store approach, to borrow the succinct words of Saul Eslake. There was no reform. It was a finger in the dyke attempt to stem the advancing flood. Infrastructure spending was relentlessly deferred, health and other services continually underfunded. It was denial writ large. Last year’s budget, tabled in May 2019, continued the fiction. It was a work-in-progress document containing $450m of efficiency dividends yet to be found. COVID might even have been a blessing for it gave the government a reason to abandon its plan for increased austerity. Six years of denialism meant COVID arrived just as the chickens came home to roost. We are dealing with their homecoming at the same time as recovering from COVID, because we were deluded by our political masters into believing the other problems were fixed. The legacy of the Hodgman government as one of conspicuous failure on the fiscal front is now glaringly obvious. Despite the problems on its doorstep, the government didn’t feel the need to alter any of its six fiscal strategies. Expense growth will be less than revenue growth, meaning the underfunding gap will continue to widen. There is no attempt to look for other revenue sources. We will continue to raise less revenue than the average of all states even after adjusting for different fiscal capacities. Low taxes are regarded as competitive. Narrow tax bases where a few taxpayers pay tax at a higher rate may be politically wise but it’s economically foolish. Federal grants as a percentage of total revenue will grow from 61 per cent in 2019-2020 to 67 per cent in 2023-2024 as ownsource revenue, particularly revenue from government businesses, shrinks. In the final two years of the forward estimates, there will be just enough revenue after operating expenses to cover the extra interest, meaning all the state’s capital spending will require borrowed funds.

The task ahead will be extremely difficult. However, not to present a more detailed outline of possibilities ahead, after delaying the budget for six months, is remiss. If we’ve learnt anything from the pandemic, it’s that there is a large need for more public services. The budget is a temporary Band-Aid not a long-term plan. The Premier signed off his budget speech by saying “this government has done it before, and we will do it again”. That’s the scary part. It hasn’t done anything to fix our underlying problems.

If inaction continues, we’re doomed.

(As published in The Mercury 19th November 2020)

1 comment:

  1. John how hard is it to calculate a dollar in revenue figure versus a dollar out expenditure figure?