“There is not only no single instance of a surplus in the last 11 years under the nationally agreed budget measure, but the ACT deficits total a staggering $4.998 billion.” JON STANHOPE & KHALID AHMED call out the chief minister.

“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.”

― Lewis Carroll, Through the Looking Glass

Notwithstanding such endearing eccentricity, Humpty Dumpty is held up as an example of how not to think or act. 

Words have a meaning that should be universally understood and in today’s world of increasing complexity, Humpty Dumpty’s quaint views on language can have serious consequences for individuals and society as a whole. 

Imagine, for example, a surgeon, in the midst of an operation, asking for gauze and being handed a scalpel.

ACT Chief Minister Andrew Barr recently claimed on ABC radio that he had achieved several surpluses during his time as treasurer and upbraided the journalist interviewing him for not challenging a claim made by his Liberal Party opponents that he, in the 12 years that he has been the ACT Treasurer, had not managed to post a single surplus. 

Mr Barr was being interviewed following the release of the 2023-24 Budget Review that revealed, as we had publicly predicted it would, a major blow out in the deficit. 

In relation to the surpluses which Mr Barr claims he has delivered, it appears he was referring to a budget measure that only the ACT government, of all the governments in Australia, apparently utilises when reporting on the operating budget-namely the so called “Headline Net Operating Balance”.

Because no other jurisdiction in Australia – none of the states or the NT or the Australian government – uses this measure, it is not possible to compare ACT budget outcomes with the rest of Australia. 

Mr Barr’s measure, as published in the ACT budget papers, includes the gains made from the investment of superannuation funds. 

Those gains are, obviously, not available for expenditure on services, which is why the standard measure agreed to by all states and territories and the Commonwealth for reporting on the operating budget excludes them from consideration. 

The nationally agreed methodology for measuring the operating budget is the UPF (Uniform Presentation Framework) Net Operating Balance, as presented in GFS/GAAP Financial Statements. GFS stands for Government Finance Statistics and GAAP stands for Generally Accepted Accounting Principles. It is the difference between operating revenue and operating expenses – neither more, nor less.

The Australian Bureau of Statistics publishes annual GFS statements and government financial reporting occurs through the Annual Financial Statement, which is audited by the auditor-general. Neither of these statements include gains on superannuation investments as operating revenue, nor indeed do the ACT’s audited financial statements.

The ACT, of course, meets its nationally agreed obligations by publishing GAAP Budget Statements, the latest of which is on Page 287 of the 2023-24 Budget Paper No. 3 and Page 115 of the Budget Review. 

Similarly, the ACT government’s preferred operating budget measure, ie including the proceeds of superannuation fund investments, cannot be found in any of the Audited Financial Statements.

Not a single surplus under the nationally agreed budget measure

The only place that we were able to identify an actual budget outcome that was comparable to the original budget forecast in a particular year, was in the Budget Review of the subsequent year. We have, however, collated all those results across the 11 years from 2012-13 to 2022-23.

Notably, there is not only not, in any of those years, a single instance of a surplus under the nationally agreed budget measure, but the deficits total a staggering $4.998 billion. 

Even after counting the gains on superannuation funds, which as we note the standard does not permit, a surplus appears in only one of those 11 years, namely of $81 million, in 2017-18. 

Tellingly, the 2017-18 Management Discussion and Analysis (MDA), which is a document prepared by Treasury, and which accompanies the Annual Financial Statement, makes no mention of any such surplus. 

It is surely telling that the claimed surplus in 2017-18 did not get a mention from Treasury. It is hard to imagine that Mr Barr was not provided with a copy of this MDA before the financial statements were submitted to the auditor-general.

Under the budget measure preferred by Mr Barr, deficits total $3.4 billion, after counting $1.6 billion in cumulative gains on investments. We believe it simply cannot be disputed that the measure being used by the current ACT government, when reporting on the budget and the state of the territory’s finances, misrepresents the true state of the operating budget and finances and misleads the community. At the end of the day it’s the actual (real) deficits that need to be funded.

In 2011-12, when Andrew Barr assumed responsibility for the Treasury, the ACT’s net debt (excluding superannuation liabilities) was negative $473 million, ie there was $473 million cash in the bank over and above the amount of debt. In 2022-23, net debt had blown out to $5.7 billion, ie  a turnaround of $6.2 billion, with the territory unarguably on an unsustainable path.

Debt is another area where the ACT government has adopted an irrelevant and therefore inappropriate measure of its sustainability. 

The standard measure for sub-national governments is Net Debt to Revenue ratio, ie the capacity of the annual operating revenue to repay the debt. In 2014-15, as the debt was rising, the government modified the measure in the budget papers as ratio of Debt to GSP (Gross State Product). The 2013-14 Budget reported a Net Debt to Revenue ratio of 20 per cent. In the 2014-15 Budget, a Net Debt to GSP ratio of 3 per cent was reported. 

The smaller number provides comfort, and indeed the ACT government’s supporters and apologists have often referred to the low Debt to GSP ratio. 

However, the rating agencies use annual operating revenue (and not the economic output) as the basis for measuring debt sustainability. In fact, there is no reference to Debt to GSP ratio in the Standard & Poor’s report that downgraded the ACT’s credit rating. 

For the record, the ACT lost its credit rating at a Debt to GSP ratio of around 14 per cent. It is forecast to increase to 18 per cent by 2026-27.

It goes without saying that wrong measures often lead to poor decisions and adverse outcomes. The rating downgrade has resulted in an increase in the ACT’s interest costs, as reflected in the 2023-24 Budget Review. 

In conclusion, on the nationally agreed standard the ACT government has not produced a single surplus since 2011-12. And not even Humpty Dumpty would have the nerve to say it had.

Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.