“The ACT has averaged a deficit of 5.8 per cent in each of the last eight years while all other jurisdictions including the NT recorded across the same years an average operating surplus of between 1.4 per cent and 3.9 per cent,” writes JON STANHOPE.

ON June 18 the ACT Chief Minister and Treasurer, Andrew Barr, made a ministerial statement on the ACT response to Covid-19.

The statement, not unexpectedly, does not want for self-congratulatory and fulsome praise for the Treasurer and his management of the ACT Budget and economy. The following excerpts give some flavour of the speech.

• “Here in the ACT, we are in one of the strongest positions around the world, due to the decisive steps to reduce the risk of transmission, while supporting our economy and protecting jobs.
• “We are only in a relatively strong economic position because we listened to and implemented expert public health advice and acted to ensure our hospitals and healthcare services were equipped to deal with COVID-19.”
• “In 2018-19, our economy was one of the strongest economic performers in Australia..”
• “We have built a strong foundation upon which we have confronted the challenges of the past few months, and this Government is leading the pathway back as we implement Canberra’s Recovery Plan.”

Now the facts. 

My colleague Dr Khalid Ahmed and I have in the last week posted to the UC Policy Space blog a detailed analysis of the financial position of all Australian states and territories before the impact of the COVID-19 pandemic. 

Our purpose was to assist in determining the capacity of each jurisdiction, before the pandemic struck, to absorb the financial shock it generated, as well as the extent of the shock.

It also allows the policy measures and expenditure decisions taken by individual states and territories, in response to the economic and other impacts of COVID-19, to be objectively assessed and reported on.

We note in our paper that the ACT is, on the basis of its financial position vis a vis all other jurisdictions, clearly the least prepared and hence less able to respond to the economic shock resulting from COVID-19. 

The two most relevant fiscal measures and aggregates through which the financial position of all Australian jurisdictions can be assessed and compared are the operating result, commonly reported as Net Operating Balance under the Uniform Presentation Framework and Net Debt. The former provides an indication of the health of the operating budget and the latter is used to measure the overall strength of a government’s fiscal position.

A comparison of the Net Operating Balance for 2018-19, reported in the audited financial statements of all states and territories reveals that all states recorded a healthy surplus and that only the ACT and the NT were in deficit. The ACT deficit was equivalent to 5.3 per cent of its Budget. However, more worryingly is that the ACT has averaged a deficit of 5.8 per cent in each of the last eight years while all other jurisdictions including the NT recorded across the same years an average operating surplus of between 1.4 per cent and 3.9 per cent.

Dr Ahmed and I have, accordingly, concluded that: “The ACT’s sustained deep deficit over seven years in an environment where every other jurisdiction’s operating budgets have been in modest to strong surplus can reasonably be attributed to a disregard for prudent financial management.” 

A comparison of Net Debt as a proportion of revenue for each state and territory reveals an equally dim picture of the state of the ACT’s finances. 

The ACT had in 2018-19, the third highest Net Debt at 40 per cent behind only WA and the NT. The weighted average of all states and territories was at that time 16 per cent. The 2019-20 ACT Budget Review forecast Net Debt in the ACT to grow to 63 per cent of total revenue within the next year. This rate is clearly unsustainable.

In our latest paper we also touch briefly on the alarming increase in the Net Financial Liabilities to revenue ratio for the ACT. The ratio has ballooned from 51 per cent in 2009 to 188 per cent in 2019 or in dollar terms by $8.8 billion. This rate is also, of course, clearly unsustainable.

The major visible impacts of the relentless attack on the principles of prudent, sober and people-focused financial management has been the massive reduction, in real terms of funding for public hospitals and the abandonment of any serious commitment to affordable or social housing. 

The ACT does have a strong economy, due in the main to the presence in our midst of the Commonwealth government. Indeed, as the Chief Minister crowed in the Assembly, the ACT is one of the strongest economic performers in Australia. 

The worrying question is, therefore, why with the strongest economy in Australia does the ACT have the weakest finances and the worst budget?