ACT's Financial Woes: A Critic's Perspective
The ACT's financial landscape has come under scrutiny from economist Saul Eslake, who has identified a decade-long deterioration in the territory's government sector finances. In a critical report, Eslake highlights policy decisions as the primary culprit, attributing a loss of at least $6.3 billion to the 'net operating balance' over the past 11 budgets.
Eslake's findings reveal a complex financial picture. While the ACT's general government finances are not as dire as Victoria, Tasmania, or the Northern Territory, they still fare worse than other states. The report underscores the impact of policy decisions, particularly those involving spending increases without corresponding revenue boosts, which have significantly worsened the government's financial health.
One of the key areas of focus is education. Eslake suggests that the ACT could benefit from spending less per capita on education, given its smaller school-age population and higher reliance on private schools. However, the territory currently spends more per student on education than any other state or territory, without achieving superior outcomes. This paradox raises questions about the efficiency of spending in the education sector.
The ACT's overall public sector finances are ranked as the third or fourth-worst among all states and territories. A significant portion of capital initiatives, aimed at infrastructure development and upgrades, is funded through debt. Eslake's report emphasizes that expense policy decisions, where spending outpaces revenue, have contributed to a net operating balance deficit of at least $7.2 billion over the past decade, with a substantial $3.6 billion occurring since 2022-23.
The economist criticizes the ACT government's fiscal strategy for its vagueness, lacking specific numerical targets for objectives like cash surpluses and net debt. He proposes potential revenue-raising measures, such as increasing taxes on gambling or removing payroll tax exemptions for small businesses. However, he also acknowledges the ACT's relatively high tax collection compared to other jurisdictions, suggesting that further tax increases could make the territory a 'high tax' jurisdiction.
Eslake recommends a focus on achieving cash surpluses to reduce debt, emphasizing that feasible options for expenditure reductions exist. He advises against arbitrary spending cuts, such as 'efficiency dividends' or 'vacancy control,' advocating for a thoughtful approach to spending reductions. The hearings for the review into the territory's fiscal sustainability are scheduled for March 3 and March 5, 2026, at the Legislative Assembly, providing a platform for further discussion and potential policy adjustments.
