Exposed: Barr’s $3 billion budget black hole

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“Since releasing the debt genie from its bottle in 2013 net debt in the ACT has ballooned to Skywhale proportions… As of today, every Canberra household is nominally indebted for $18,000 to cover the repayment cost of the existing debt,” writes JON STANHOPE.

IN May last year it was reported that the 2019-20 Tasmanian budget had “plunged” into debt.

Jon Stanhope.

The Tasmanian Labor shadow treasurer was quoted as saying: “The irresponsible dive into debt will see taxpayers foot the bill for millions of dollars worth of interest every year.”

The quantum of the debt that reduced the Labor Party in Tasmania to apoplexy was $284 million. The fact that the budget was in surplus did not, it appears, assuage Labor’s horror.

The report further said the Tasmanian budget forecast that the level of debt would “balloon” to $1.1 billion in 2022-23, which it advised is about a sixth (16.6 per cent) of Tasmania’s annual operating revenue. 

If the Tasmanian Labor Party thinks that $248 million of debt is “irresponsible” what should we make of the current ACT Labor/Greens government’s attitude to the debt that it’s racking up?

It is notable that when Andrew Barr became Treasurer in 2011 the ACT had negative net debt of $736 million. That means there was $736 million in the piggy bank and the territory’s cash reserves therefore exceeded its gross liabilities by that amount.

Andrew did not, however, muck about and within a year the piggy bank was empty and by the end of his second year in the job the ACT budget had “plunged” into net debt of $109 million.

Since releasing the debt genie from its bottle in 2013 net debt in the ACT has “ ballooned” to Skywhale proportions. From a position of negative net debt of $736 million in 2011 it has increased in giant leaps, somewhat akin to the cravings of an ice addict for methamphetamine, the more you have the more you need, to a debt of $109 million in 2013; $910 million in 2015; $1.453 billion in 2017 and $2.216 billion in 2019.

However, that’s not the half of it. Net debt of $2.216 billion at June 2019, at least in the eyes of ACT Labor and the Greens is no more than a trifle, nothing to worry about – a mere bagatelle. 

The ACT 2019-20 budget review accordingly advises that by June net debt will be $3.076 billion and will increase to $4.030 billion by June 2022 at which time it will be equivalent to 63 per cent of the ACT’s annual operating revenue. 

The budget review also confirms that the repayment cost that ACT ratepayers are being asked to cough up, in this year alone, for the debt that Labor and the Greens have accrued is $214.7 million. It should also be noted that when interest rates do inevitably begin to rise that the interest payment on our net debt will increase by approximately $40 million for each one per cent increase in the interest rate.

Notwithstanding the existing low-interest rate environment the current level and rate of increase in net debt is clearly unsustainable. 

From 2013 to 2019 net debt has increased at a compounding rate of 65 per cent a year. What this represents, in real money terms, is that as of today every Canberra household is nominally indebted for $18,000 (over and above current rates and other charges) to cover the repayment cost of the existing debt. That sum will increase with the already mooted additional $1 billion in borrowings over the next couple of years. 

While the government has been bashful about exactly how and when it plans to discharge all this debt you do understand, I assume, that it will in the main be left to a future (most likely non-Labor) government, and to your children and grandchildren to pay off. 

The government’s lack of fiscal discipline is not only reflected in the almost $5 billion turnaround in the ACT’s net debt in the decade to 2021-22. 

The budget review also confirms the extent to which the ACT budget increasingly gives the appearance of being a work of fiction. Indeed it would hold its own if nominated for the Miles Franklin Award.

Let me give you one example. In the budget review the government concedes that the estimated headline deficit of $89.1 million for 2019-20 had morphed into a deficit of $255.6 million. A blowout of the deficit of $166.5 million or just under 290 per cent in just seven months.

The change was explained on page 29 of the budget review in the following terms: “This is a deficit increase of $166.5 million in 2019-20 primarily as a result of a decrease in GST revenues.” In other words it was the Commonwealth’s fault.

However, over the page, on page 31 of the budget review, it is reported that the decrease in Commonwealth grants revenue, comprising largely GST revenue, for 2019-20 was $17.6 million. In other words the decrease in GST revenues constituted only 10 per cent of the total increase in the blowout in the deficit but was unblushingly described in the budget review, in true Trumpian fashion, as the “primary” reason for the blowout. 

Incidentally, the truer picture of the state of the ACT finances is given not by the headline deficit but by the net operating balance which is currently forecast in the budget review to be a deficit of $458.3 million. 

I have never been entirely sure what the expression “going to hell in a hand basket” means or indeed when it might reasonably be used, but my instinct is, in light of the state of the ACT budget, that around about now might be appropriate.

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Jon Stanhope
Jon Stanhope was Chief Minister from 2001 to 2011 and represented Ginninderra for the Labor Party from 1998. He is the only Chief Minister to have governed with a majority in the Assembly.

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