The NT Pre Election Fiscal Outlook (PEFO)

The NT Treasury released the PEFO last week. I don’t propose to attempt to summarise it, but further to a number of recent posts on NT budget matters, I will merely make a couple of brief observations and comments.

As one would expect from a document of this nature, the tone is subdued and neutral, and merely hints at value judgments on decisions which have been taken, or need to be taken by the incoming Government.

While I intend to focus largely on a couple of matters of particular relevance to Indigenous policy, it is worth noting that the state of the NT budget is of broader relevance to NT Indigenous citizens given that the comprise around 30 percent of the NT population.

Thus the commentary on the recent downgrade of the NT Treasury Corporation’s debt by Moodys from Aa1 with a negative outlook to Aa2 with a stable outlook will potentially add $14m to the Territory’s annual interest burden on its debt. The stated reason for the downgrade include ‘weakening revenue projections, larger deficits, the expectation that demand pressures would make the low expense demand projections difficult to achieve, and the continuing poor performance of the Power and Water Corporations financial performance’. This is far from a positive endorsement of the NTG’s financial management credentials.

The issues I wish to focus on are the policy changes since the May budget. The document lists $47m in new decisions.

One of these decisions was to allocate $7m are for the establishment of various task forces ‘to support the work that will be required as a result of the establishment of the Royal Commission into the Child Protection and Youth Detention systems in the Northern Territory announced by the Prime Minister on 26 July 2016’. Elsewhere the PEFO notes that the NT will budget to pay 50 percent of the costs of the Royal Commission. It follows that this allocation of $7m must be to fund the preparation of the NT Government’s submission to the Royal Commission, and presumably to fund the early implementation of better practice procedures in the relevant sectors. It can thus be seen as a measure of the investment which should have been made to deliver effective and appropriate services but was not.

A second decision worth noting is an investment of $30m in remote services. At page 12 of the PEFO, Treasury explain that the NT had received an upfront payment form the Commonwealth of $154m to fund around $20m per annum of municipal and essential services (MES) in remote communities over the eight years to 2022-23. The PEFO notes:

While the up-front payment improved the 2015-16 fiscal balances [by $154m], these funds were in lieu of around $20 million in annual revenue through to 2022-23 that remain budgeted to be spent in all forward years. Accordingly, the decision to re-invest an additional portion of the up-front proceeds of the MES funding into one-off projects, as well as maintaining the $20m ongoing recurrent expenditure, is a cost to the budget and contributes to the worsening of the 2016-17 fiscal balance.

The PEFO also lists a breakdown of the $30m in one-off projects on page 16. Most of the capital items are clearly legitimate needs and the existence of the needs being addressed cannot be questioned. However $10.7m relates to the creation of 137 full time equivalents for Aboriginal employees delivering services across the Territory. These are recurrent costs and implicitly lock in around $11m per annum in required expenditure if the jobs are to be maintained going forward. What this $30m allocation also tells us is that the real ongoing cost of remote essential services provision is closer to $50m per annum than then $20m which has been historically allocated by the Commonwealth and the NT. Because much of it relates to capital investment, most of it won’t be picked up in the Grants Commission needs assessments, and therefore won’t be reflected in the NT’s GST allocations.

What is crystal clear is that the decision to allocate an extra $30m was primarily influenced by the forthcoming election. Given the decades long history of politically motivated largesse towards non-Indigenous interests in the Territory, it is hard to begrudge Indigenous interests their share of politically motivated largesse. We might also conclude that this expedient allocation is a reflection of the increasing capacity of Indigenous voting patterns to influence politics and policy. Nevertheless, while good policy is usually good politics, the reverse does not hold.

The allocation of funds for job creation is worthwhile, but responsible budget management would have included the cost into the forward estimates rather than allocating zero. Similarly, the allocation of $1.4m for upgrades to outstation housing (‘more than 50 houses on 12 outstations’) raises expectations that the Government will take responsibility for all outstation housing, a matter which raises significant policy issues given that the actual owners are in most cases Aboriginal Land Trusts who have legal responsibilities for the upkeep of these assets.

Finally, throughout the PEFO, there are multiple references and instances of delays to capital projects leading to financial carryovers form one year to the next. While these are stated in neutral factual terms, they suggest a much deeper and extensive problem related to policy implementation capacity and/or a deliberate strategy to slow down spending so as to inflate current fiscal balances and push deficits into future years. Either outcome is poor policy.

The remedy must be a combination of greater transparency, which will need to be driven through parliamentary committee hearings and hopefully a focus by oversight bodies such as the Auditor General; and a stronger oversight role form the Commonwealth given its strong fiscal involvement in the Territory (it funds 70 percent of NT budget expenditures) and in many cases the fact that the delays related to tied programs. Unfortunately, these mechanisms have not worked particularly well to date, and a combination of independent analysis and astute use of the media will also be necessary to achieve better outcomes for Indigenous interests.

The bottom line is that the Territory is facing substantial fiscal headwinds. In such an environment, the historical record has been that Indigenous needs have been the easiest services to cut, with the implicit expectation that the Commonwealth will step in to fund any particularly egregious shortfalls. This assumption increasingly looks suspect.

Given these systemic realities, there is a strong case for Indigenous interests in the NT to work to establish and fund independent oversight and advocacy mechanisms to monitor the financial performance of the NT Government if they are to avert the risk that they will be asked to shoulder an unequal burden in the inevitable budget repair task ahead.

The likely election of a new Government creates an opportunity for Indigenous interests to demand a new approach to transparency and accountability for the delivery of government services in the NT.