Monday, September 28, 2020

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Home Issue 31 Only way Feds would bail out the NT is by taking it...

Only way Feds would bail out the NT is by taking it over

By ERWIN CHLANDA

A common view is that Canberra will bail out the Territory from the Gunner Government’s record debt which is tipped to grow to $8 billion by the end of the year.

But CDU Professor Rolf Gerritsen (pictured) in Alice Springs says that would mean the Feds taking over the NT again – an option that’s growing on a lot of people.

Without the Commonwealth our future looks dismal unless rigid “Budget discipline” is introduced, something of which there is little evidence so far.

For example, the government is spending an extra $20m for police to secure borders, notwithstanding that we have three times as many cops than the national average.

“The Feds won’t bail us out,” says Prof Gerritsen.

“We’re just not important enough. If the Feds would bail us out they would resume control of the Territory. They would have to or else we would just spend the next decade running up our debt again.”

What if the Feds won’t bail us out?

GERRITSEN: I would say within the next three years our credit rating will go down. We’re now on the third peg of credit ratings. We’ll go down more. The costs of our borrowings will go up and eventually the Territory Government won’t be able to deliver services because the entire Territory Budget will entirely be spent on servicing the debt. Unless there is budgeting discipline.

NEWS: At the current performance of the Government, how much longer have we got?

GERRITSEN: It’s hard to tell because we don’t know how long the Coronavirus is going to last.

Prof Gerritsen says there is room for manoeuvring as the attrition rate in the NT public service is high. The police could be back to its original number in 18 months.

“If you don’t recruit you can eventually get the public service down quite a lot.

“Us whitefellers are expatriates. We leave the Territory at one stage or another. There is demographic work that says if you stay for five years you stay for 20 or 30. Many people stay for three.

“In the pubic service you have an attrition rate of about 30%,” says Prof Gerritsen.

“The trouble is, I suspect, you wouldn’t reduce the real problem which are all these senior executive contract officers. We have got 546 of them for a population of 244,000 and Tasmania has got 165 for a population of about 500,000.

“Public servants are between 12% and 15% of the electorates in the northern suburbs of Darwin.

“According to received wisdom and 2012 aside, this is where the election is decided. You can’t really hit the public service.”

NEWS: How likely is it for the economy to grow sufficiently for the debt to be paid off in reasonable time?

GERRITSEN: One assumption is that you restrain expenditure growth to the CPI growth – Budget discipline. On forecast levels of debt next year, $7 billion plus, I reckon it would take 10 to 20 years to pay that down.

The Treasurer’s claims that the Government had been exercising Budget restraint before COVID-19 “is smoke and mirrors stuff.

“For instance they announced the ship lift, such a dodgy project. They put $100m of the taxpayer’s money into it. The other $300m was going to be borrowing. That $100m is not in the Treasurer’s statement yesterday. They have not budgeted for it.

“In the 2019/20 Budget was an allocation for more than $100m for Indigenous housing, in agreement with the Feds – $100m each. We only spent $68m, according to a source.

“We can’t tell until the Budget comes out in November but I suspect there has been a lot of Budget discipline exerted on Indigenous services.

“In days of yore, when there was proper scrutiny, not this farce of an Expenditure Review Committee, the Government would publish estimate expenditure and actual. Well, they’ve stopped giving us the actual.”

NEWS: What was the position of the Budget before COVID-19?

GERRITSEN: Our revenue had collapsed. GST was $261m less than we budgeted for.

NEWS: COVID-19 couldn’t be foreseen. The GST reduction could.

GERRITSEN: Yes.

Direct aid to businesses played a role, he says.

Today it was announced that $3.5m would go to the Alice Springs Asia Pacific Storage and Maintenance Facility which is making a killing, storing jetliners from the world over grounded by the pandemic at the airport, while in town much of the economy is struggling.

Prof Gerritsen says more storm clouds are ahead: Housing construction dropped 10% in 2019/20 and is expected to further decline 16% in the fiscal year just started.

“That’s a massive hit to GST,” he says. Half of the NT’s income comes from GST.

7 COMMENTS

  1. “The trouble is, I suspect, you wouldn’t reduce the real problem which are all these senior executive contract officers. We have got 546 of them for a population of 244,000 and Tasmania has got 165 for a population of about 500,000.”
    Ralph, are some of these “senior executive contract officers” ministers’ minders or advisors?
    If so, why don’t we put them all on “performance based” contracts … that would save shirtloads of money!

  2. As a graph provided by former Chief Minister Marshall Perron reveals, it is the GST that inadvertently became the root cause of the Northern Territory’s worsening financial disaster.
    The guaranteed flow of money sourced from the GST permitted a corresponding rise – almost exponential – in NT public service employment, with the setback of the Global Financial Crisis over a decade ago registering as barely a blip.
    An interesting aspect to this period is that the GST and Labor’s dominance of Territory politics are coincident, commencing in the same year – 2001, and with only one term (2012-16) that wasn’t a Territory Labor Government.
    Make of that what you will.
    However, we’re now caught in a vicious cycle of our own making.
    As Professor Gerritsen points out, the high percentage of public servants (combined with other family members, etc) – especially in Darwin – makes it extremely difficult to enact the necessary economic reforms to adhere to “budget discipline”.
    Voter self-interest most likely will outweigh the public good so, in effect, our particular brand of democracy is working against itself.
    Over-arching all of this is the constitutional obligation for the provision of “good government” which is effectively impossible under the current situation, because not enough voters will likely support it.
    This is unsustainable therefore at some point the Commonwealth will be obliged to intervene.
    Frankly that can’t come soon enough.

  3. It is true the NT is almost done.
    In 40 years all it has gained is a bitumen highway and a railway line.
    I wonder how much South Australia would pay for us?

  4. It would help if we did not give our resources away. We may have some spare cash. Stop paying unskilled public servants huge wages.
    The populace needs to vote in skilled people to run government.
    The NT has not had a smart government since the Stone / Perron days.

  5. If the Feds bail out the NT, that will mean taking back Darwin Harbour amongst other things.
    The NT can then get better guidance and management in being developed into a thriving connection to Asia and being a massive food bowl which can connect direct to Parkes and Forbes as freight hubs.

  6. “A common view is that Canberra will bail out the Territory.”
    I began raising the problem of the NTG’s looming operational and structural insolvency nearly two years ago.
    Friends and associates with long term connections to the ALP NT aggressively rejected my assessment the Commonwealth would be forced to intervene. The view regarding the possibility of the Commonwealth intervening in this matter has only emerged publicly in the NT since the Johnston by-election.
    “The Feds won’t bail us out.” Correct. Because to “bail out” suggests a free pass back into the black.
    What will eventually happen is the NT Government will no longer be able to borrow any money (= operational insolvency) and will have dug a debt hole so deep they cannot trade out of the deficit (= structural insolvency).
    The NT will have crossed the Commonwealth’s line for State and Territory fiscal ineptitude.
    The Commonwealth will be forced to step in. But there will be harsh penalties and conditions. For example, executive contract level positions will largely become a thing of the past.
    Under the previous NT Government then Treasurer Dave Tollner managed to get state debt below $2 billion, with the trend continuing downwards.
    Mr Tollner has expressed dissatisfaction he was unable to reduce the debt further and faster in the time he had available. An admirable approach, little reported.
    The current Labor Government on the other hand have pushed debt to an unsustainable level and have provided little transparency or explanation of the how and why.
    The Treasurer and the Chief Minister have made many attempts to blame changes to GST funding levels as if GST funding is cast in stone into the forward estimates for a decade at a time.
    They now they are lying, but do it anyway.
    Politically, within Labor circles, there was also an incorrect assumption that Bill Shorten would win the 2019 federal election and with it would come immediate debt relief: Part hubris, part naivety, which unfortunately led to more debt.
    As for C-19, the lockdown will continue only as long as the Commonwealth are picking up the tab. When that ends, the economy will restart.
    In the event there is a change of Government later this month the incoming administration will have two choices.
    One, continue on towards oblivion, or two, root and branch pruning of all government expenditure. While the need to remove all NT Government barriers to private sector activity is imperative, all the gas development in the world will not generate sufficient royalties to dig us out of Ms Manison’s and Mr Gunner’s debt hole.
    There is another, important structural cost the NT has to bear, which we need to go about unwinding, but that is the responsibility of Treasury and advisory personnel to brief on (i.e. those being paid to).

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