Saturday, May 03, 2008

Saturday Forum: Delivering a Budget in the dark

"The emailed answer from the Chief Minister's office suggests it would rather fly partly blind than have to cope with new information."

Canberra is odd sometimes.

A farce will be played out on the floor of the ACT's Parliament on Tuesday afternoon - one that has little to do with good government and everything to do with leaving the people of Canberra wondering.

As as is his tradition when delivering the Budget, the Chief Minister in his role as Treasurer will outline the ACT’s prospects and his plans for managing them in the year ahead.

The problem is that this year he won't be in a position to do so.

No-one will be able to predict with any certainty what's in store for the ACT until they know the contents of the Federal budget to be delivered on May 13 - exactly one week later.

That would be true in a normal year. The Budget papers Jon Stanhope released last year said so.

In their words, “payroll tax, stamp duty, rates and land tax are exposed to risks associated with employment levels and wages in the ACT, which are driven largely by expenditure in the public sector”.

Their warning: “A significant change in Australian Government public sector expenditure...

...particularly in the form of ACT based staffing levels, would affect the property market in the ACT with a flow-on effect on property related taxation revenue. This would also have a flow-on effect on private sector economic activity, and therefore affect payroll tax revenue”.

This year Australia's Treasurer Wayne Swan and its Finance Minister Lindsay Tanner are indeed planning a significant change in Australian Government public sector expenditure – the most significant in twelve years and one that in the view of Stanhope’s advisors could affect almost every aspect of the Territory's financial health. We just don’t know what it is.

And so next Tuesday the Chief Minister will rise to address the Assembly partly blindfolded.

He needn’t be.

NSW, much less exposed to decisions made by the Feds, is bringing down its budget on June 19 - after it has had a full five weeks to consider the impact of the Federal budget.

Queensland, South Australia and Tasmania have also scheduled their budgets for June.

As has the ACT in recent budgets. Each of the two previous Stanhope budgets was delivered in June.

Until this one, when what the Commonwealth does will really matter.

Jon Stanhope’s office told the Canberra Times on Friday that there have been special reasons for delaying the budget until June in each of the last two years. In 2007 the Chief Minister was on a trade mission to China. In 2006 he was awaiting the outcome of the functional review that recommended closing schools and winding back government services.

This year he has reverted to the practice of the previous Treasurer in delivering the budget in May. Victoria, West Australia and the Northern Territory are doing so as well.

But why should we? We won't know what's in store for us.

The emailed answer from the Chief Minister's office suggests that it would rather fly partly blind than have to cope with new information.

It reads: “The time and processes involved in preparing the Budget means it is not feasible to wait until after the Federal Budget is announced before constructing the ACT Budget".

In any event “the ACT has a robust economy with the capacity to withstand the anticipated impact of the Federal Budget on the ACT economy” - reassurance at odds with the warning in the back of last year's budget document.

It is possible that the Federal Treasurer's office has had a quiet word with Jon Stanhope’s office, let it in on what will be in the Budget and given it enough to plan with.

But unlikely, if what we are told about the ability of the Chief Minister's office to absorb last-minute information is true. And leaking early information about the extent of the planned staff and funding cutbacks to the ACT would run the risk of that information leaking out more widely, which it has not.

Wayne Swan himself didn’t give much away when asked by the Canberra Times yesterday whether he had passed early information to the ACT, saying only that he had “a good relationship with the government here in Canberra, that’s all I have got to say”.

It may suit the Chief Minister's purposes to deliver his budget and the forecasts within it without knowing how much worse things might be about to become.

The ACT budget to be handed down on Tuesday will be a pre-election budget. Rosy forecasts are useful.

The language began picking up in last year’s ACT budget. The previous one, Jon Stanhope’s first as Treasurer, used shocking language - deliberately.

“Mr Speaker, in many ways this might be the most significant budget to be handed down in our short history,” he declared.

“It looks unflinchingly at what we have done, how we have spent, the expectations we have nurtured, the excuses we have made.”

“The truth is not always comfortable.”

“Since self-government, ACT Governments have consistently spent more, across the board, on services than governments. We have been living beyond our means.”

The Chief Minister's discovery that the ACT had to tighten its belt was by all accounts genuine.

When confronted at a 2005 Cabinet meeting with figures showing just how badly the budget was deteriorating he reportedly expressed anger and disbelief.

He set up the Functional Review of ACT Services while the then Treasurer Ted Quinlan was overseas, took Quinlan’s job himself and delivered the unpalatable medicine in June 2006.

In June 2007 he eased up. He gave the budget an upbeat title, “Taking the Territory Forward” and promoted it in government advertising, some of it on the backs of buses.

The Chief Minister said he was delivering “a set of numbers only made possible” by his first budget.

The message was “gain from pain” and Jon Stanhope described the outlook as “exceptionally positive”.

He was wrong about the outlook, although he wasn’t to know so at the time. Much of what the Chief Minister described last June didn’t continue, and much of what he forecast didn’t come to pass.

The Chief Minister said last year that the ACT had “recorded the strongest growth in building approvals in the country in March”.

This March the ACT recorded the biggest drop in building approvals in the country – by far. They shrunk 50 per cent.

The Chief Minister said last year that “growth in retail turnover in the ACT outstripped the national average for the year to March”.

In the year to March this year the ACT’s growth in retail turnover was eclipsed by every state but one.

Last year the Chief Minister boasted about 6,600 new jobs in the Territory.

In the most recent year the number has fallen to 2,700.

This March the number of newspaper job advertisements collapsed, sliding 3.4 per cent in one month - the biggest such slide since just after the Howard government came to power in 1996.

The ACT’s population growth, respectable a year ago, has slowed to a crawl.

In the most recent quarter reported on by the Bureau of Statistics the ACT population grew by just 460 people - the smallest increase since 2004.

All of that and more was accounted for by births. More existing ACT residents left the Territory than outsiders moved to it.

The Chief Minister forecast last year that growth in State Final Demand would accelerate to 4.75 per cent a year and stay there for a number of years. In fact it has slid. In its latest review of state and territory economies the ANZ Bank is predicting 1.7 per cent for the current financial year, and 1.5 per cent for the next. It adds a caution: “With the new Commonwealth government looking for savings across the public service, the risk of a more severe downturn remains on the cards”.

The ACT has been whacked by rising mortgage rates harder than most. Its citizens are more highly mortgaged.

“And perhaps we are better informed,” in the view of Chris Richardson of Access economics.

We wound back our spending earlier than did the rest of Australia.

And we are terribly aware of, if uncertain about the extent of, the impending public service cutbacks.

We will know on May 13.

But the ACT government probably won't when it attempts to plan for our future one week that before on May 6.

It'll be a curious fortnight.

ADDENDUM: An ACT Labor MLA phoned up during talkback on Canberra ABC radio this morning to explain that the upcoming ACT October election made it imperative that the ACT budget was held in May this year.

The election date is fixed and the ACT government goes into caretaker mode soon, so a May budget is the only way they can get the estimates process done in time.

A satisfactory explanation, if true. But the timing is unfortunate.