The Australian dollar continues to soar ever higher as global investors reflect on the best terms of trade in our history, so why is it that every level of government is borrowing heavily at the top of a boom?
It’s called democracy and the irresistible urge of politicians to spend their way to popularity.
While next Tuesday’s estimated $50 billion federal budget deficit is the big one, we did get budgets from Victoria, the ACT and the Northern Territory yesterday, which all confirmed the debt-funded proclivities of Australia’s public sector.
Ted Baillieu’s first Victorian budget was in stark contrast to the first Kennett budget handed down on April 6, 1993, which remains unprecedented in Australia with its 10% spending cuts across the board.
Debt was the dominant theme of today’s newspaper coverage. The Australian Financial Review went with “Debt soars in Baillieu’s first budget” on page one, while The Age splashed with “Baillieu set to double state debt“.
However, as usual, there was confusion in the reporting of gross and net debt, along with budget sector and public sector debt.
Jeff Kennett inherited $33 billion of gross debt and $18 billion of unfunded superannuation liabilities from Joan Kirner in 1992.
Seven years later he had sold about $35 billion worth of assets and handed back to Labor a public sector balance sheet with gross debt and unfunded super reduced to about $20 billion.
The Age reported on page one today that Victoria’s “debt is expected to almost double from $11.9 billion in 2011 to $23.2 billion in 2015”.
That’s not the full picture as the Herald Sun’s Stephen McMahon correctly wrote that gross “debt is expected to hit $38.6 billion in the next four years”. Terry McCrann referred to “a huge unfunded superannuation liability” without actually quoting the latest figure of $22.7 billion. Victoria’s total unfunded liabilities are just passing Kirner’s $50 billion now and will hit $60 billion in four years.
Treasury Corporation of Victoria, the central borrowing authority, is yet to inform the market of its 2011-12 program as the website is still focused on the $4.44 billion of new borrowings that were required in 2010-11.
Unlike the federal government, which now publishes gross borrowings on its debt agency home page every week and also releases the results of every bond tender, the various state and territory governments are very poor when it comes to debt disclosure.
The best thing that can be said about Victoria is that its financial position was strong enough to resist the need for the federal government to guarantee its debt during the global financial crisis. Unlike NSW and Queensland, which needed guarantees covering tens of billions.
Ted Baillieu is known to be a left-wing progressive Liberal, but who would have thought his budget would look governments in other places. Today’s budget editorial in The Canberra Times was far removed from Monday’s page-one beat up, which claimed the ACT bureaucracy was to bear the brunt of “savage spending cuts”. Compare that with this more sober editorial assessment today:
“One of the budget’s more contentious announcements — that the already well-staffed ACT Public Service is to be increased by about 320 full-time equivalent staff — has been offset to some extent by the government’s stated promise to reduce overall numbers by 210, but only by normal staff turnover and targeted voluntary redundancies.”
The Canberra Times editorial also claimed that ACT borrowings are forecast to rise to about $650 million, about $200 million more than forecast, but remain in a comfortable band considering this is a $4.1 billion budget.
Huh, go to page 225 of the budget papers and you will see that ACT debt is set to rocket by a record $530 million to $2.04 billion in 2011-12.
That’s a whopping 33% increase in total debt in one year — at the very top of a boom. Yes, the little old ACT government is embarking on a course that can only end with Queensland-style privatisation, most notably of ACTew Corp, which owns 50% of the main water, gas, waste and electricity utility in Canberra and is already loaded up with $830 million in public debt.
Finally, we have yesterday’s Northern Territory budget, which also produced a debt-focused lead story in the Northern Territory News, especially seeing as Treasurer Delia Lawrie is projecting a recurrent deficit of $387 million in 2011-12 before even considering capital spending.
Lawrie dismissed as “scare mongering” claims by the Opposition that soaring public debt was unmanageable. The Territory’s net debt is projected to double from $1.1 billion to $2.2 billion over the next four years. And that’s after receiving per capita handouts from Canberra that are more than five times higher than most states. So much for riding the resources boom into surplus.
*Stephen Mayne was press secretary to Victorian Treasurer Alan Stockdale from 1992-1994 and was refused accreditation for yesterday’s budget lock-up.