Gutwein's grand delusion

 

The Budget papers elicited a memory of an Irish joke which I’m sure you’ve all heard. In answer to a tourist seeking directions to Dublin, the local responded: ”Well Sir, if I were you, I wouldn’t start from here”.

If we are to move to a better place, we shouldn’t be starting with the latest budget delivered by Premier Gutwein. The narrative is awfully misleading. “Last year we leveraged our strong balance sheet to support our community and underpin our economy”, the Premier said. ‘Leveraged’ is right, we borrowed more. ‘Strong balance sheet’ is wrong ‘cos it’s not. The State government’s net assets are no greater than the combined net assets of local governments. Because government businesses are inextricably entwined with the rest of the government sector, one needs to look at total State sector when passing judgement on our supposed strength.  The State’s total assets, including those of government businesses will be $37 billion by 2025. There will be $9 billion of cash and investments (mainly Tascorp and MAIB) and $28 billion worth of land, buildings, infrastructure etc. But there will be $28 billion of liabilities including borrowings of $11 billion and unfunded superannuation of $10 billion Net financial liabilities therefore will be $19 billion. As Saul Eslake recently observed, relative to our size this is larger than all other States and territories except for Northern Territory. Premier Gutwein always likes to draw attention to our low borrowings, our net debt, compared to other states. This is deliberately misleading. It’s our total financial liabilities that’s the relevant metric.

In short, we don’t have a strong balance sheet. Maybe if we have strong and reliable cash flows it doesn’t matter. We don’t though. We are heavily dependent on the vagaries of the GST pool for much of our revenue from the Feds. Conveyancing duties will soon become the largest contributor from our own sources. Not only are they subject to the swings and roundabouts of the property cycle making it less than ideal for a service provider requiring steadily rising income, there’s a perversity about property duties in a rising market. The more property sales the higher the duties and the greater the gap between the housing rich and the housing poor.

The Premier is always suggesting his government’s strong budget position didn’t happen by chance. There’s a nifty table in the budget papers which suggests otherwise. It compares last years’ estimates with this year’s. Changes are either parameter or policy adjustments. Policy adjustments are due to deliberate government decisions. The rest are parameter changes which occur due to the economic environment or to timing. There were $1.4 billion of parameter changes which increased revenue. There were $67 million of policy changes but this reduced revenue. Good luck was a big contributor to our good fortune

All of the unexpected increased revenue, plus a bit more will be spent, honouring election promises plus trying to play catch up with health spending. Not to be spending this would have been remiss. But it’s the narrative that accompanies the spending which is deliberately misleading. The rock solid certainty is that Mr Gutwein will never preside over a budget with a cash surplus. The 2021 Fiscal Sustainability Report reveals that under every possible scenario over the next 15 years we will spend more than we will receive, yet Mr Gutwein is trying to tell us black is white. He said he was “pleased that next year the Budget returns to a cash operating surplus of $368.8 million”.  What he conveniently forgot to tell us was that net spending on infrastructure was a further $839 million and transfers into government businesses and other advances are budgeted at $414 million. The total cash deficit in 2022/23 is expected to be $843 million, not a surplus of $368.8 million as Mr Gutwein wants us to believe.  That’s a small difference of $1.2 billion. It is regrettable that he should take advantage of widespread ignorance about financial statements to present an inaccurate view of our budgetary position. We will be running cash deficit into the future as far as the eye can see. To pretend otherwise will mean that we won’t ever get to where we should be going because we really don’t know fully understand our current position.

It’s not that we should alarmed by debt per se. Interest rates are low and debt servicing cost are low. It may only cost $2 per to service a $100 loan but it still costs $100 to repay the amount. There’s no likelihood of that occurring in the foreseeable future. That’s the issue we should be discussing. The current budget is designed to please, is based on a deliberate distortion about our current situation and ignores the fiscal cliff ahead. It is not a plan for the future. We deserve better.