Belated thoughts on the NT Budget

With the NT election upon us in two weeks, and as a follow on to my previous post on Revisiting the Failed State in Northern Australia, I thought I would have a quick look at the NT Budget.

 I was overseas in May when it was brought down, and didn’t have the opportunity to have a close look at it. I am not proposing to undertake a detailed assessment, but rather to highlight some of the more salient implications for Indigenous policy at both NT and Commonwealth levels.

 I noted n my previous post that fiscal equalisation is a nationally sensitive issue, and periodically returns to the policy agenda. I had not anticipated however the Turnbull Government’s recent announcement of an olive branch to Western Australia of a floor in the distribution carve up which by definition means less funds for all the other states and territories. The progressive shift of state and territory governments towards Labor Governments appears to have facilitated this with only two Conservative jurisdictions which need to be assuaged if one assumes the CLP will lose the NT election.

 The short term political benefits of assisting the Barnett Government as it faces a challenging election, and of sandbagging the Federal Government’s reputation ahead of the next federal election, are obvious. Prime Minister Turnbull’s decision, if implemented, will exacerbate the progressive diminishment of what has been a longstanding, largely successful and innovative Australian policy institution, namely the Grants Commission.

Once the notion takes hold that Governments can unilaterally shift the fiscal equalisation goalposts, the utility of having an independent umpire is lost, and the precedent of unilateral over-rides can justify future politicisation of the process in ways which no-one can currently predict. Quite apart from the more general policy arguments for transparent process in the fiscal equalisation process, my fear is that greater politicisation will mean that small jurisdictions such as the NT, and in particular its Indigenous citizens, will end up with even less capacity to influence equitable outcomes.

The NT’s 2016-17 Budget was brought down on 24 May 2016 by NT Treasurer David Tollner. Here is a link to the NT Budget website.

The macro statistics on the budget (rounded for clarity) essentially extracted for the Budget Overview document are as follows:

Total expenditure is $5.7bn. Of this, the NTG allocates $3.8bn in recurrent, $0.4bn in various staffing commitments; $0.5bn in capital investments, and the Commonwealth $ 0.98bn (let’s say $1bn) in recurrent/capital support, or 17% of the total budget. The NTG allocations are funded from GST allocations, around 50% of the budget and own revenue, close to 30%. In other words, the Commonwealth Government is funding almost 70% (or two thirds) of the NTG budget.

The second issue worth considering is the NTG’s debt levels. The Budget Papers refer to NTG debt levels as being $2.7bn and projected to increase to $3.1bn over the next three years. This relates however to what is termed the Non-Financial Public Sector, and does not include debt carried by the NT Treasury Corporation on behalf of $1.5bn to Government owned Corporations and Government Business Divisions. See link here. The total NTG debt is thus around $4.2bn. Total interest repayments each year are around $250m. While the NTG’s rhetoric emphasises the contrast between the former NT Labor Government’s alleged debt blowout and the current Government, a key issue not seriously addressed in the budget has been the desirability of pursuing an aggressive debt reduction strategy utilising the proceeds of the sale of the NTG port of Darwin, and the previous sale of the Government owned Territory Insurance Office. The prospects of further reductions in GST revenues merely serve to reinforce the advantages of using the proceeds of asset sales to do this.

It is worth having a quick look at the Treasurer’s budget speech and the actual Appropriation Bill to flesh out some of the language and issues I am referring to. The link is here.

Some selected extracts:

This Budget sets a clear choice of continuing to grow a prosperous, robust and diversified economy, over Labor’s plan, which again, racks up the debt and attacks the very heartland of our Territory. This Budget protects our way of life and focuses on growing the private sector, utilising the strengths of our workforce to adapt to new industries and gets on with the task of providing the best education, health and safety for our community….

….However, recent reductions in revenue are estimated at more than $1 billion over the budget cycle. This is made up of a reduced GST share totalling $750 million, and lower estimates of stamp duty and mining royalties. These reductions will delay the achievement of ongoing surpluses in the short term. It would be irresponsible for us to continue to target a budget surplus in 2017-18 at the expense of protecting jobs and maintaining investment in critical areas of the economy….

…Last year the Territory economy grew by an impressive 10.5 per cent, the highest rate of growth since 1998-99. …The Territory Government will be contributing to investment in 2016-17 with a near record $1.7 billion infrastructure spend….

…The Port of Darwin lease generated proceeds of $506 million. Budget 2016 re-invests $431 million of the proceeds into a range of projects designed to stimulate investment and diversify the Territory economy, with the remaining $75 million used to pay off Labor’s debt burden…

…A major part of the Government’s diversification plan has been the implementation of the Northern Territory Infrastructure Development Fund. As the House is aware, the Government seeded this innovative fund with $200 million from TIO sale proceeds. Budget 2016 strategically invests a further $100 million from the Port lease into the Fund. This investment takes the total Territory contribution to $300 million. This government investment will be the cornerstone in targeting an additional $1.2 billion from external investors. This $1.5 billion investment fund should generate more than $4.5 billion in private sector infrastructure investment….

Budget 2016 demonstrates the Government’s commitment to Indigenous Territorians with a direct investment of $1.2 billion. Creating employment opportunities for indigenous Territorians is critical to building individual self-esteem and confidence. It is also critical in building future economic prosperity in our remote communities. Key highlights in Budget 2016 to foster this goal include:

• $400 000 for crocodile farming business enterprises in East Arnhem; ….

• $1 million to support air services between Darwin, Katherine, Tennant Creek and Alice Springs;

• $2 million to support Indigenous business;

• $5.5 million to continue the expansion of telecommunication services and provide internet access; and

• $5.25 million over two years for bakeries in remote communities. This particular initiative is a result of the strong relationship we have with the Federal Indigenous Affairs Minister, Senator Nigel Scullion.

The provision of housing and essential services in the bush is paramount. The Giles Government recognises this and $1 million is being provided to establish a Northern Territory Remote Housing Development Authority. This Authority will give local people more say on the provision of housing and essential services in their communities. It will empower communities to focus on better local engagement, management and delivery strategies.

Budget 2016 also delivers crucial investment in housing and essential services in remote areas with:

• $211 million, again through the efforts of Senator Scullion, to construct new, and upgrade existing, housing;

• $30.3 million for housing and essential services in Arlparra, Elliott and Kalkarindji; and

• $36.2 million over two years to upgrade power, water and sewerage services.

This Budget provides for Indigenous people living in homelands with $21.3 million for the Homelands Program to provide housing and maintenance services and $5.35 million to continue the Homelands Extra Allowance program.

Commentary

I have quoted the speech at some length to give a sense of the key Indigenous initiatives highlighted.

The decision to surrender on the task of budget reform is in direct contraction to the Commonwealth’s budget policy focus, but is clearly driven by politics rather than ideology. It does create a sharp distinction between Commonwealth budget policy and that of the NTG.

I find the comments in Treasurer Tollner’s speech on the close relationship of the NTG with Minister Scullion somewhat curious. The Commonwealth assistance for establishing bakeries in remote communities (criticised by Nick Cater in a recent op ed in the Australian, although Cater’s target was unnamed bureaucrats rather than Minister Scullion who appears to deserve the credit) seems slightly odd given the range of policy challenges facing residents of remote communities, and does not appear to have been announced or highlighted by Minister Scullion on his ministerial website. See Chief Minister Giles’ 13 May 2016 media release which makes clear the focus is on job creation, but doesn’t address the nutrition concerns in remote communities which Minister Scullion pursued in the most recent Senate Estimates hearings, and which don’t square with the investment in bakeries.

The $5.25m investments in bakeries, located within existing stores, and the $2m allocated to supporting Indigenous businesses (probably comprising the $7.35m mentioned in the Chief Minister’s bakeries press release) may create some immediate jobs. But in the absence of robust feasibility analyses and business cases, there are serious risks that once the funding runs out, the stores will either cross subsidise the bakeries from within, leading to yet higher prices, or the bakeries will close leaving the communities disenchanted with store management, and the capricious nature of government intervention in local economies.

The simplistic mantra ‘jobs good, welfare bad’; or ‘private sector good, public sector bad’, which seems to underpin much public policy in relation to indigenous development is a recipe for ongoing economic and social disaster in remote communities.

As for the $211m for remote housing claimed to have been provided ‘through the efforts of Senator Scullion’, these are funds negotiated under the NPARIH by the previous federal Labor Government. I have dealt with the policy issues surrounding the proposed Remote Housing Development Authority in a previous post. I merely add that while remote residents comprise 30 percent of the NT population, the NT Government is investing $322m for essential services upgrades in urban centres, and only $47m in remote communities; and in housing, is spending $211m in remote communities (tied Commonwealth funding under NPARIH) and some $140m over five years in urban social housing. Notwithstanding the rhetoric, the NTG preference for favouring the towns over the bush is still clearly in evidence.

At a more macro level, the claimed $1.2bn ‘direct investment’ in Indigenous citizens of the NT is nowhere laid out and impossible to reconcile. The largest investment listed in the Budget Overview document in the two pages on Aboriginal Affairs is the Commonwealth funded remote housing investment of $211m, and the other items listed appear to sum far short of $1.2bn.

The proposed NT Infrastructure Development Fund as described in the Budget Speech strikes me as a magic pudding. A Territory investment of $300m leverages (through an unspecified mechanism) $1.2bn in private sector funding, which brings the fund to $1.5bn which then  (through an unspecified mechanism) leverages ‘more than $4.5bn in private sector investment’. I must be missing something! Bottom line, if there is a strong case for private sector investment, government should not be investing. If there is not a case for private investment, then government needs to be very careful about investing, particularly if it is taking on the lion’s share of the risk, either commercial or social.

Poorly structured Private/Public Partnerships can end up leveraging the liabilities for government without sharing in the upside. In the meantime, the $300m contributed by the NTG might have gone to debt reduction, with a flow on to reduced debt repayment obligations and/or a reduction in the opportunity cost of needed social investments which have been foregone. Indigenous Territorians would be entitled to ask, what can they expect out of the sale of the Darwin Port and the Territory Insurance Office?

Conclusion

The Territory budget reflects the realities of the Northern Territory. It is a small jurisdiction with huge challenges. The political dynamics of small electorates, fluid population, polarised partisan political debate, significant Indigenous population, and substantial and longstanding levels of government debt all play into shaping a lowest common denominator budget. The likely change of government in two weeks is not going to change the political and budget realities of the NT.

Indigenous Territorians have been longstanding losers in NT budget politics, and it is still the case that the Commonwealth and not the NT is shouldering the majority of heavy lifting in relation to underpinning Indigenous citizenship entitlements. Not only is the Commonwealth providing around two thirds of the NT Budget, but it is through its substantial defence and socials services expenditures the major force underpinning the economic strength and stability of the NT.

In these circumstances, it is incumbent on the Commonwealth to keep the NT honest in terms of its Indigenous citizens. There is a structural problem, akin to a conflict of interest, in having a Northern Territory Senator as Minister for Indigenous Affairs given the significant Commonwealth financial and policy presence in the NT.

To take just one example, the moves underway to move away from National Partnership Agreements which locked in state and territory contributions to match Commonwealth investments will make it even more difficult for the Commonwealth to encourage the NT to stump up matching dollars for Commonwealth investments. On key investment decisions, the Commonwealth will either have to go it alone, or not invest at all. In either case, Indigenous citizens are the losers.

The Commonwealth should be taking a much tougher line with the NT over its budgetary treatment of its Indigenous citizens. Of course, as the Commonwealth itself pulls back across the budget, it is in no position to lecture the states and territories on budget matters.

Add to this the likely adverse consequences for the NT and its indigenous citizens , both short and longer term, of politicising the fiscal equalisation process which underpins the federation, and the budget fairness prospects for Indigenous citizens in the NT (and indeed in other states and territories) appear bleak indeed.

When Indigenous citizens, particularly that resident in remote Australia, are compared to mainstream Australians, they fare poorly. The reasons are structural and not merely the result of day to day politics. But day to day politics, as reflected in the 2016-17 NT Budget, provides further confirmation of the adverse consequences of those structural forces which have persisted for decades.