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Home Issue 26 Government finance: The Emperor unveiled

Government finance: The Emperor unveiled

By DON FULLER

Part 8 – Final

 

On March 11 Michael Gunner visited Alice Springs.

 

He was asked by the Editor of the Alice Springs News, Erwin Chlanda: “What is the collateral for your Government’s borrowing?”

 

Gunner replied: “This is a commercial arrangement and I can’t discuss this.”

 

This is a startling response from the leader of an Australian Government.

 

This carefully placed question by Chlanda unveiled how the Chief Minister appears to have a complete lack of understanding of Government finances and how a key component of this finance – Government debt – actually works.

 

Suddenly, the Emperor had no clothes! 

 

 

Borrowings in the case of private commercial entities such as businesses or private households do require collateral to support their holdings of debt. Most who have a mortgage on their private dwelling would appreciate such arrangements.

 

In such a case, the collateral is the dwelling and the deposit required from the borrower. Similar forms of collateral are required in the case of borrowing by a private or large commercial business.

 

However, in the case of a State, Territory or National Government in Australia, no such collateral is required by lenders of finance.

 

In these cases lenders are aware that State and Territory Governments have very extensive assets in the form of property, capital equipment and infrastructure. They are also very aware that Governments such as the Territory have revenue raising capacity through taxation as well as the financial support of the Commonwealth (up to a certain point). 

 

However, what lenders are very concerned about is the financial state of the Budget and in particular how much spending is exceeding revenue and how much debt the Territory has.

 

Irresponsible Budget management as we have seen in the Territory may have the effect of delaying interest payments if complex negotiations are required with the Commonwealth to bail out the Territory so that is can continue to pay its interest obligations to lenders. An inability to do this is a prime reason for sending a commercial operation bankrupt.

 

What lenders to the Territory watch very closely is not a collection of collateral but how well the Budget is being managed. This is regularly evaluated by what are called ratings agencies.

 

They analyse the Budget health of States and Territories and provide them with a rating which is also made public. Lenders watch such rating evaluations closely.

 

Any fall in this rating results in a re-evaluation of the risk lenders place on lending to the Territory.

 

A decrease in ratings will result in a rise in interest rates on Territory borrowings.

 

This does not mean the Territory can’t pay its debt necessarily, but it does mean that there are more attractive alternatives available for lenders than the Territory Government. Because of this the Territory will be forced to pay an increased amount for its less desirable borrowings.

 

So, this is not a matter of “commercial in confidence” at all as stated by the Chief Minister.

 

The arrangements are widely known, in the public arena and appreciated by those with a minimum understanding of financial issues, and have been for a very long time.

 

Treasurer Nicole Manison handing down the Budget in May 2018.

 

With this in mind, it is therefore important that the premier ratings agency Moody’s Investor Services in May 2019 was reported to have “voiced scepticism” at the NT Treasury’s optimism over the Budget.

 

It stated that for the Government to achieve its savings measures it would take a “lot of ducks to line up”.

 

It is again concerning that the NT Treasurer was reported to have shrugged off Moody’s appraisal and stated that the NT economy was “starting to turn”.

 

There appears not only to have been a lack of respect and follow through given to the effort and professionalism provided by Langalount in his excellent report showing the NT Government how to proceed to get out of the Budget mess on a step by step basis.

 

There also appears to be a lack of understanding by both the Chief Minister and the Treasurer of the importance of ratings agencies such as Moody and their warnings, for the Territory economy.

 

To have such an apparent lack of financial understanding by those leading the NT Government at this time of financial stress, is very scary, for most Territorians to say the least.

 

What chance does the Territory have of building a confident, competent economy under such leadership?

 

The answer? Very little!

 

High levels of accountability and transparency, especially related to the expenditure of public funds, is essential to political, economic and community development.

 

An apparent inability to understand the important linkages between adequate levels of financial accountability in a properly functioning democratic Government – and political, economic and community development – has been one of the main criticisms of commentators regarding the performance of the Gunner Government, since coming to power.

 

It is of substantial concern that such failures have continued to occur since the election of the Gunner government some four years ago.

 

Disturbingly, there is little evidence of a Government capable of learning.

 

Sadly for the Territory, good government and in particular, sound financial management, appears to have proved far too complex and difficult for the Gunner government.

 

Previously in this series:

 

Part 7: Pandemic recovery: Infrastructure or knowledge industries?

 

Part 6: Territorians need truth on economy and government finances

 

Part 5: The grandstand and grandstanding

 

Part 4: With Gunner, great advice is of little use

 

Part 3: Gunner’s rule: Economic cracks widen, accountability vanishes

 

Part 2: Not much left of Gunner’s lofty promises

 

Part 1: Gunner Government: Budget misuse and democracy collide

 

 

 

3 COMMENTS

  1. Erwin – it is possible the NT Government is close to being both operationally and structurally insolvent?
    Operationally insolvent in that they will eventually run out of money to meet day-to-day costs, but be unable to borrow any further.
    Structurally insolvent in that Gunner and Manison have created a debt hole too large for the NT to “trade” out of.
    That is, despite the large inflows of Commonwealth monies, the debt hole is simply too big to be ever overcome.
    It is clear Gunner and Manison were counting on a Shorten Government bailing them out, although that did not go according to plan.
    No Shorten = no bail out.
    It is possible Morrison / Frydenberg may provide debt relief but that would come with substantial and onerous conditions.
    And with Queensland going down a similar route the Commonwealth will be in an unforgiving mood.
    Bizarrely, the single task Gunner and Manison had was to spend no more taxpayer monies than they were provided by the Commonwealth.
    In even this they have failed, and grotesquely so.
    Although with Labor, it is always such.

  2. Do you know the government has taken over the old Chiefly for Covid-19?
    And that the government is once again asking about the Anzac Oval take over.
    Yet another survey is being taken of the sentimentality of having the gallery on Wills Terrace and the disruption of the Totem Theatre and Community Centre.

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