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Could the cool capital go into Budget meltdown?

By Greg Cornwell - 14 February 2017 14

ACT Mid-Year Budget

Governments always dress up their budgets to look good but the devil is in the detail, as is said. The ACT Government’s mid-year budget update is no different, with speculation future promised surpluses will be much less than previously predicted.

Such crystal ball gazing is risky, there are too many unpredictables ahead, so rather than guess the actual amounts to put Canberra back in the black, the methods employed by our financial masters can be examined.

Rates will continue to rise as will land tax, the latter considerably, reflecting building investment. The Government continues to use special levies to raise more revenue – there are at least six – but it is unclear whether or not certain householders are exempt, as was the case with housing tenants and the domestic violence charge.

Apparently the utilities levy also will be increased. One hopes the amount will be more accurate than the expensive ‘guesstimates’ employed by ActewAGL in lieu of meter readings.

Against these demands upon the community is the continuing phasing out of stamp duty for house buyers. This reform has been too slow perhaps but is welcome, except for those owners footing the increased costs offsetting it.

Again the new convention centre has been postponed to the disappointment of business and the tourism industry. There is talk of an injection of presumably substantial federal funds, but why would the Commonwealth chip in for a commercial enterprise that has limited national benefit and would take patronage from existing centres interstate with more to offer, including votes? As the centre was to be a cornerstone of the city to the lake development, what now for that proposal?

Despite continuing criticism about government pork-barrelling, consultation funds for an ice sports facility in Tuggeranong is listed, thus satisfying two constituencies: the participants and the local Tuggeranong community. The incapacity of sports, even large national groups, to fund themselves remains a mystery, while selective government sponsorship and assistance raises questions of fairness. Similarly, seed funding for arts activities is provided, raising the same question.

It is important that this is only a budget update, but already the spectre of costs (blowouts?) for the controversial tram loom large, while the need to address urban services issues like maintenance of parkland and repair of footpaths draw increasing local complaint.

Fortunately the development of greater Canberra is accompanied by the provision of services, but this ever-growing expansion creates headaches for financial planners. Inevitably the budget is going to run out on repairs and management of common areas and upgrades of suburban shopping centres.

Such underfunded expenditure could be carried over, ignoring community concerns, but it is unlikely financial salvation would be ahead given the big ticket items planned or already announced. So the chances of a surplus budget in the foreseeable future diminishes and to perhaps even longer if the Woden tram extension proceeds.

Anyway, is a surplus budget, Micawber-like, all that important except for bragging rights? Does the average local, ignorant of the consequences, care if cool Canberra goes into meltdown?

Should the ACT Government push back plans for the City to Woden light rail link given speculation future promised Budget surpluses will be much less than previously predicted?

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14 Responses to
Could the cool capital go into Budget meltdown?
1
Tarinedier 11:46 am
14 Feb 17
#

If the government is unable to spend all the money it taxes from people, then they are taxing them too much. We don’t need a surplus.

2
Maya123 12:13 pm
14 Feb 17
#

Tarinedier said :

If the government is unable to spend all the money it taxes from people, then they are taxing them too much. We don’t need a surplus.

There is nothing wrong with having some money in surplus. Then when something comes up it can be paid for.

3
Lerenor 12:55 pm
14 Feb 17
#

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

4
Garfield 2:08 pm
14 Feb 17
#

Tarinedier said :

If the government is unable to spend all the money it taxes from people, then they are taxing them too much. We don’t need a surplus.

In the context of the ACT Government expecting to pay $204m of interest this financial year, or about 4% of revenue, achieving a surplus is not an exercise for its own sake, but to reduce debt and thus future interest charges. The ACT currently has about $5.5b of financial liabilities. To put this in real temrs for residents, if the government did not have any debt and so wasn’t paying any interest, residential stamp duty could have already been eliminated and rates could also be reduced somewhat rather than the above inflation increases forecast to continue at least as far as the end of the forward estimates.

5
chewy14 2:30 pm
14 Feb 17
#

Lerenor said :

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

Your amounts are correct but only for the first stage of the light rail, every year for the next 20 years.

But the government has identified that it wants to roll the system out Canberra wide which is part of the justification of having everyone pay for the system despite the majority of the benefits accruing to landholders and residents along the first stage route.

So either the cost will be vastly higher than you’ve mentioned or the first stage will be the only stage delivered in which case there is a serious equity issue.

And all of this is completely outside of an assessment of the opportunity cost of that spending and where the money could have been utilised to the greatest benefit to the community.

6
Garfield 2:33 pm
14 Feb 17
#

Lerenor said :

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

The full cost of stage 1 of the tram is fairly close to 2% of revenue for the next 20 years. Labor’s campaign claim that it was less than 1% did not include the lump sum payment to the consortium upon completion of construction and did not include costs to government other than the annual payments to the consortium, such as interest on borrowings and the recently revealed large salary to the CEO.

During the campaign they committed to building stage 2 without any caveats regarding cost-benefit or opportunity cost. With the additional difficulties of crossing the lake, it will cost more than stage 1. If you’ve looked at their pretty maps, there are another 3 major stages after that as well as a few lesser routes. The full cost of the light rail network they want to build will be at least 10% p.a. of revenue. Come the next election they have to press ahead with more stages unless they want to admit that its too expensive, and so concede ground to the Liberals.

At the moment Action provides public transport services for the whole ACT at a cost of about 2% of revenue. As the trams will take over the most highly travelled bus routes, that cost is likely to remain similar even after the tram is completed. What we’re potentially facing is a fivefold increase in the cost of providing public transport for the ACT, so expect the tram to remain an election issue for at least the next 4 years. In regards to road spending, I looked up how much it cost us last year and it was less than the p.a. cost of 2 stages of the tram. Please keep in mind those road costs are currently used by almost every resident while the trams will only be used by a small minority.

7
dungfungus 3:32 pm
14 Feb 17
#

It was a relief to see the government drop the convention centre plans. This proposal was totally unviable and on top of the black hole the light rail is creating the ACT would have been in an irretrievable financial situation if it went ahead.

What the real financial situation is only the current government knows. It is unusual for any government to retain continuous power for 15 years and without a new government to flush out the financial skeletons that may be in cupboards, the territory could be in worse shape than the government admits to and we will be totally in the dark until the bubble bursts or we get a change of government.

Just the unfunded public service pension liability of some $6 billion dollars is enough to cause serious concern and if there is any surpluses they should be applied to this liability immediately.

I think there is as much chance of a surplus as there is in finding a pot of gold at the end of a rainbow but this government seems to have a lot of faith in rainbows so, who knows?

8
HiddenDragon 5:02 pm
14 Feb 17
#

“Does the average local, ignorant of the consequences, care if cool Canberra goes into meltdown?”

The results of the last, indeed the last few, ACT elections would suggest not – perhaps, in part, because we have a relatively high proportion (compared to other cities) of people who don’t expect to be here long enough to have to worry about the medium and longer term prospects for the ACT Budget and rates, levies etc.

Anyway, things will probably keep burbling along much as they are, provided the international markets continue to supply Australia with the relatively cheap and easy credit which is keeping the national bubble, and the cool little Canberra bubble, inflated. If that supply dries up, things will get very interesting, very quickly.

9
Chris Mordd Richards 6:02 pm
14 Feb 17
#

Garfield said :

Lerenor said :

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

The full cost of stage 1 of the tram is fairly close to 2% of revenue for the next 20 years. Labor’s campaign claim that it was less than 1% did not include the lump sum payment to the consortium upon completion of construction and did not include costs to government other than the annual payments to the consortium, such as interest on borrowings and the recently revealed large salary to the CEO.

During the campaign they committed to building stage 2 without any caveats regarding cost-benefit or opportunity cost. With the additional difficulties of crossing the lake, it will cost more than stage 1. If you’ve looked at their pretty maps, there are another 3 major stages after that as well as a few lesser routes. The full cost of the light rail network they want to build will be at least 10% p.a. of revenue. Come the next election they have to press ahead with more stages unless they want to admit that its too expensive, and so concede ground to the Liberals.

At the moment Action provides public transport services for the whole ACT at a cost of about 2% of revenue. As the trams will take over the most highly travelled bus routes, that cost is likely to remain similar even after the tram is completed. What we’re potentially facing is a fivefold increase in the cost of providing public transport for the ACT, so expect the tram to remain an election issue for at least the next 4 years. In regards to road spending, I looked up how much it cost us last year and it was less than the p.a. cost of 2 stages of the tram. Please keep in mind those road costs are currently used by almost every resident while the trams will only be used by a small minority.

Please add in the initial construction cost of those roads inc. salaries as well as the ongoing maintenance costs and then re-post the accurate percentage, which is a lot closer to the 10% you are quoting for the light rail, ta!

10
dungfungus 6:44 pm
14 Feb 17
#

HiddenDragon said :

“Does the average local, ignorant of the consequences, care if cool Canberra goes into meltdown?”

The results of the last, indeed the last few, ACT elections would suggest not – perhaps, in part, because we have a relatively high proportion (compared to other cities) of people who don’t expect to be here long enough to have to worry about the medium and longer term prospects for the ACT Budget and rates, levies etc.

Anyway, things will probably keep burbling along much as they are, provided the international markets continue to supply Australia with the relatively cheap and easy credit which is keeping the national bubble, and the cool little Canberra bubble, inflated. If that supply dries up, things will get very interesting, very quickly.

From ABC News online under: The threat to Australia’s credit rating

Treasurer Scott Morrison is trying to save Australia’s prized AAA credit rating, burdened by a $37 billion budget deficit.

But as his department’s mid-year economic forecast explained in December, the extra tax collections from higher iron ore and coal prices “will be more than offset by the impact of weaker growth in aggregate wages and non-mining profits across the forward estimates”.

Which means ratings agency Standard & Poors will probably carry through on its threat to cut Australia’s credit rating.

Are our leaders asking the wrong questions?

All the political focus rests on balancing the budget, but is that what Australia’s economy and society needs right now?

Mr Oster said the real-world impact would be felt by bank customers, who would pay more when they took out a loan.

“You would probably say that offshore borrowings is about a third of our total funding, so you’ll get an increase in banks funding costs, which I think banks will probably pass on,” he said.

Just what an embattled Treasurer doesn’t need.

As for the outlook for iron ore and coal, and the boost to Government revenue over the past year, Mr Morrison won’t like that either.

“The underlying demand for iron ore is not as strong as what the price is suggesting and I note that even Rio Tinto and BHP have recently said pretty much the same — that the prices we’re seeing are not sustainable over the long term,” Mr Potter argues.

Mr Potter sees iron ore plunging back to $50 a tonne, with coal also heading a long way south.

11
chewy14 9:06 pm
14 Feb 17
#

Chris Mordd Richards said :

Garfield said :

Lerenor said :

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

The full cost of stage 1 of the tram is fairly close to 2% of revenue for the next 20 years. Labor’s campaign claim that it was less than 1% did not include the lump sum payment to the consortium upon completion of construction and did not include costs to government other than the annual payments to the consortium, such as interest on borrowings and the recently revealed large salary to the CEO.

During the campaign they committed to building stage 2 without any caveats regarding cost-benefit or opportunity cost. With the additional difficulties of crossing the lake, it will cost more than stage 1. If you’ve looked at their pretty maps, there are another 3 major stages after that as well as a few lesser routes. The full cost of the light rail network they want to build will be at least 10% p.a. of revenue. Come the next election they have to press ahead with more stages unless they want to admit that its too expensive, and so concede ground to the Liberals.

At the moment Action provides public transport services for the whole ACT at a cost of about 2% of revenue. As the trams will take over the most highly travelled bus routes, that cost is likely to remain similar even after the tram is completed. What we’re potentially facing is a fivefold increase in the cost of providing public transport for the ACT, so expect the tram to remain an election issue for at least the next 4 years. In regards to road spending, I looked up how much it cost us last year and it was less than the p.a. cost of 2 stages of the tram. Please keep in mind those road costs are currently used by almost every resident while the trams will only be used by a small minority.

Please add in the initial construction cost of those roads inc. salaries as well as the ongoing maintenance costs and then re-post the accurate percentage, which is a lot closer to the 10% you are quoting for the light rail, ta!

Please include the cost of a tram network to my house that provides the exact same functionality as a car. Ta!

We’re trying to compare apples vs apples here right?

12
Garfield 9:05 am
15 Feb 17
#

Chris Mordd Richards said :

Garfield said :

Lerenor said :

The premise of this article is flawed. The cost of the tram is what, 1 or 2 percent of the territory budget? Hardly going to lead to budget catastrophe. Maybe less spending would be good, but it’s an unrelated issue. We spend vastly more on health and education (and probably roads for what it’s worth). We’ve had two elections(!) on this exact issue, can we let it rest?

The full cost of stage 1 of the tram is fairly close to 2% of revenue for the next 20 years. Labor’s campaign claim that it was less than 1% did not include the lump sum payment to the consortium upon completion of construction and did not include costs to government other than the annual payments to the consortium, such as interest on borrowings and the recently revealed large salary to the CEO.

During the campaign they committed to building stage 2 without any caveats regarding cost-benefit or opportunity cost. With the additional difficulties of crossing the lake, it will cost more than stage 1. If you’ve looked at their pretty maps, there are another 3 major stages after that as well as a few lesser routes. The full cost of the light rail network they want to build will be at least 10% p.a. of revenue. Come the next election they have to press ahead with more stages unless they want to admit that its too expensive, and so concede ground to the Liberals.

At the moment Action provides public transport services for the whole ACT at a cost of about 2% of revenue. As the trams will take over the most highly travelled bus routes, that cost is likely to remain similar even after the tram is completed. What we’re potentially facing is a fivefold increase in the cost of providing public transport for the ACT, so expect the tram to remain an election issue for at least the next 4 years. In regards to road spending, I looked up how much it cost us last year and it was less than the p.a. cost of 2 stages of the tram. Please keep in mind those road costs are currently used by almost every resident while the trams will only be used by a small minority.

Please add in the initial construction cost of those roads inc. salaries as well as the ongoing maintenance costs and then re-post the accurate percentage, which is a lot closer to the 10% you are quoting for the light rail, ta!

I found some of my notes from when I looked up road construction and maintenance costs and the amount in the budget wasn’t a whole lot more than Action was costing the government. Even if every last dollar of interest that we’re paying comes from road construction, and we know that’s not the case, roads are costing us about 6% of revenue, and if we want to factor in some overhead costs lets call it 7-8%. Let’s say that with the tram network public transport use is somehow boosted to 10% of the population despite the fact that use has been declining under this government. With the tam that’s 10% of revenue to provide public transport for 10% of the population to use compared to 7-8% of revenue to provide roads for 90% of the population to use, and we also need to keep in mind that without buses on roads feeding the tram network, it can’t operate. I’d much rather see spending on Action boosted to 3-5% of revenue to see if that could improve the frequency, reliability and speed of public transport and so get more people out of their cars at less than half the cost of light rail. If that didn’t work, the extra buses purchased would still be useful in reducing future acquisition needs and so would not be a write off. In contrast if light rail doesn’t work, as the vast majority of analysts believe to be the case including the ACT Auditor General, we the ACT taxpayers will be stuck with billions of additional debt to pay off with very little to show for it.

13
dungfungus 9:20 am
15 Feb 17
#

dungfungus said :

HiddenDragon said :

“Does the average local, ignorant of the consequences, care if cool Canberra goes into meltdown?”

The results of the last, indeed the last few, ACT elections would suggest not – perhaps, in part, because we have a relatively high proportion (compared to other cities) of people who don’t expect to be here long enough to have to worry about the medium and longer term prospects for the ACT Budget and rates, levies etc.

Anyway, things will probably keep burbling along much as they are, provided the international markets continue to supply Australia with the relatively cheap and easy credit which is keeping the national bubble, and the cool little Canberra bubble, inflated. If that supply dries up, things will get very interesting, very quickly.

From ABC News online under: The threat to Australia’s credit rating

Treasurer Scott Morrison is trying to save Australia’s prized AAA credit rating, burdened by a $37 billion budget deficit.

But as his department’s mid-year economic forecast explained in December, the extra tax collections from higher iron ore and coal prices “will be more than offset by the impact of weaker growth in aggregate wages and non-mining profits across the forward estimates”.

Which means ratings agency Standard & Poors will probably carry through on its threat to cut Australia’s credit rating.

Are our leaders asking the wrong questions?

All the political focus rests on balancing the budget, but is that what Australia’s economy and society needs right now?

Mr Oster said the real-world impact would be felt by bank customers, who would pay more when they took out a loan.

“You would probably say that offshore borrowings is about a third of our total funding, so you’ll get an increase in banks funding costs, which I think banks will probably pass on,” he said.

Just what an embattled Treasurer doesn’t need.

As for the outlook for iron ore and coal, and the boost to Government revenue over the past year, Mr Morrison won’t like that either.

“The underlying demand for iron ore is not as strong as what the price is suggesting and I note that even Rio Tinto and BHP have recently said pretty much the same — that the prices we’re seeing are not sustainable over the long term,” Mr Potter argues.

Mr Potter sees iron ore plunging back to $50 a tonne, with coal also heading a long way south.

And there is this. Personal debt problems in Canberra are just as bad as everywhere else in Australia:

http://www.abc.net.au/news/2017-02-15/households-on-the-edge-of-debt-crisis/8265696

14
Mysteryman 11:02 am
15 Feb 17
#

It’s only going to get worse. And the cost of living in Canberra is going to continue to increase disproportionately to inflation thanks to the never-ending increase in taxation. Rates, land tax, rego, utilities, parking, etc, etc, etc.

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