Monday, December 18, 2006

Tuesday column: Poor little rich state

Am I missing something? The ACT is richer than it has ever been. An average worker here takes home $1,056 per week. In NSW it’s $870. In the past year take-home pay here jumped 8.5 per cent (mainly because more of us are working full-time) In NSW it scarcely moved.

Spending here climbed 4.2 per cent in the last year. In NSW it increased scarcely at all.

And unemployment here is so low that it’s now difficult to measure. The best guess is that only 5,600 of us are looking for work.

So why is it that we apparently can’t afford to keep our schools open and can’t afford to have ACTION busses running more frequently than once every hour in the middle of the day?...

It can’t be because we don’t want these things. All the evidence suggests that a society’s income increases it starts demanding better schools, better hospitals and – yes – better bus services.

And it shouldn’t be because we can’t afford these things. If, at a time when the ACT economy is about as good as it could ever get we can only afford one bus an hour, what will we be able to afford when things turn down?

I am told that the answers to these questions lie in a secret report prepared for the ACT government by the head of Actew Michael Costello and a former head revenue in the Commonwealth Treasury Greg Smith.

The review itself wasn’t secret. The Chief Minister announced it with something of a fanfare a year ago. He said it would put everything “under the microscope”.

Perhaps he didn’t like what it found. The report has been under lock and key ever since Jon Stanhope took delivery of it.

It is hard to imagine why he wouldn’t want us to know the truth about what we can afford as uncovered by the two people in the best position to know.

Perhaps it is because it would tell us some things that Jon Stanhope doesn’t want us to know.

A look at the latest Grants Commission report comparing spending and taxing across the states and territories provides some hints as to what that might be.

Someone much better than me at pulling out figures from such reports has used a pen and paper to work out where the ACT “over spends” compared to the rest of Australia and where it “under taxes”.

The first surprise is that, on these figures the ACT hardly overspends on schools at all.

The ACT spent $315 million on schools in 2004-05. That’s only $27 million more than it would have spent had it spent at the same rate as the nation as a whole.

But the ACT did overspend on pre-schools. Its expenditure of $13 million was almost twice the national rate.

And its spending on universities was almost 10 times the national rate.

(By the way I am not arguing that the ACT should cut its spending on universities or pre-schools to Australia-wide rates. As I have pointed out we are generally richer than the rest of Australia and the richer a society gets the more it demands spending on services such as education.)

In dollar terms the ACT’s overspending on education is tiny compared to the two areas in which the ACT administration does overspend big time.

One is superannuation payments for its public servants. The ACT spent almost $400 million on superannuation benefits in 2004-05, more than it spent on schools, pre-schools and universities combined. It spent almost two and a half times what it should have, based on state and territory norms.

Why has the ACT been so much more generous than any other state or territory?

Because, unlike every other state and territory, it has had to in order to attract workers. Right next door to the ACT administration and much bigger is the Commonwealth public service. It treats its employees to the gold standards in superannuation schemes – the CSS and the PSS. Until now the ACT has done so as well in order to keep pace. It pulled out of the race in July this year. From now on new ACT public servants will join a much less generous scheme, but it will take decades for the higher spending to fade.

And the ACT overspends on health and welfare compared with the rest of the nation. It spends 40 per cent more than the Australian norm - twice what it does on schools. It does it in large measure because it has to pay more to attract and keep doctors. As anyone new to Canberra who has tried to find a general practitioner will know, there aren’t that many doctors here. They seem to prefer living by the coast.

Most doctors know very little about the ACT. Until two years ago we didn’t have a full-service medical school. The ANU took in its first undergraduate medical students only in 2004. They will graduate at the end of next year, and perhaps they will want to stay in Canberra. But until the numbers build up we are going to have to pay over the odds for doctors.

The Grants Commission figures show that on the whole the ACT has overspent only in the areas that it has had to. And it has under taxed... not at all. According to the figures I have seen the ACT earned about the same from taxes and charges in 2004-05 as would have any administration.

The ACT is not unusual in feeling the need to cut services at a time when its population is at its richest. When the NSW was at its economic peak its teachers had to bring in their own chalk.

There is probably a broader explanation for the present paradox of private wealth and public parsimony. It’s something I’ll ponder the next time I am unwise enough to wait for an ACTION bus.

Peter Martin is economics editor.