“The loss of the AAA credit rating is not to be taken lightly. There’s now an increased understanding that the priorities of the Labor-Greens government are set to deliver less services or greater taxation – or both,” says political columnist MICHAEL MOORE. 

THE former Federal Treasurer, Peter Costello, made a religion of budget surpluses. 

As an electoral ploy it was highly successful, allowing him to argue that Labor would never have been able to achieve the surplus success that he finally achieved. Furthermore, if they came to power, surpluses would be undermined.

Costello was the longest serving Australian treasurer, overseeing fiscal matters at the national level from 1996 to 2007. He did everything he could to achieve a surplus, including selling off Commonwealth assets. Some of those assets were buildings in Canberra where departments paid more in 10 years than the sale price.

Surpluses are not critical. Rather the most significant indicator of fiscal responsibility is to maintain the AAA credit rating by Standard and Poor’s. For the first time since self-government, the ACT has been downgraded to AA+. The downgrade indicates a failure in fiscal responsibility by the Labor-Greens government.

In last week’s “CityNews”, Jon Stanhope and Khalid Amed explained the failure and that the responsibility for the fiscal failure lay with Chief Minister and Treasurer Andrew Barr.  

Despite the chief minister’s attempts at a positive spin, the ACT is vulnerable to a worsening fiscal situation. The only way that the ACT can recover is through cuts in expenditure or increased taxation.

Borrowing by state and territory governments for capital works does make sense. However, such borrowing must be contained to ensure we are not living beyond our means. The “Net Debt to Revenue Ratio” is the best indicator and is one of the key indicators used by Standard and Poor’s.

Provided the government has the ACT living within its means it is appropriate to borrow in order to share the advantage of capital works amongst all of those who will use them. For example, borrowing to fund roads, reservoirs and other infrastructure is spread out across 20 or 30 years to be used by current and future generations.

The ACT may not need to always run surpluses. However, we cannot afford to go deeper and deeper into debt.

Just as many Canberrans have placed a mortgage on their homes for long-term advantage, so too the territory can gain long-term advantage for borrowing for capital works. This is why there is a distinction between the part of the budget that is for capital works and the part of the budget that is set aside for recurrent expenditure.

The challenge facing the treasurer and this government is that recurrent expenditure is used for paying for education, hospitals and other healthcare, police and prisons as well as to support day-to-day expenditure on our public service. 

However, recurrent expenditure is also used to pay the interest on loans that are used for capital works. The more spent on interest, the less there is for these vital services.

Federal MP Andrew Leigh warned in 2016 of the dangers of the ACT being downgraded from its AAA rating. He did so in the context of an impending election, warning that the Canberra Liberals would put the ACT at risk if they had to pay compensation for aborting the construction of the light rail.

Dr Leigh, who was previously a professor of economics at the ANU, explained: “There’s certainly an impact on the reputational risk of the ACT, there’s also a general impact on business confidence. Places that get revenue downgrades, that tends to rattle businesses”.

The Canberra Liberals’ leader, Elizabeth Lee, pointed out that “the high level of debt is costing Canberrans over $1 million a day in interest repayments, and this latest report shows that the interest bill will only increase”. 

She said: “This is ACT taxpayers’ money that could be spent on health, education, housing and other essential services, but is instead paying off Andrew Barr’s debt”.

She returned to the theme of government “spin”. 

“This demonstrates that Andrew Barr’s repeated claims of returning the budget to surplus are not achievable and are just more spin from this arrogant, tired government”.

The loss of the AAA credit rating is not something that should be taken lightly. There is now an increased understanding that the priorities of the Labor-Greens government are set to deliver less services or greater taxation – or both.

Michael Moore is a former member of the ACT Legislative Assembly and an independent minister for health. He has been a political columnist with “CityNews” since 2006.