Page 1897 - Week 06 - Thursday, 5 May 2005
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If you are not doing your job, it seems, the policy in the Labor Party is just to raise taxes and the mug punters will have to pay. The government’s planned operating loss of $91 million I do not think will be achieved, for reasons I have already given. I find also much more unbelievable the estimated operating results of $1 million in the subsequent year, $39 million in 2007-08 and $73 million in 2008-09. The government achieves these unrealistic figures by building in fanciful assumptions about continuously rising land values and the continuously rising value of its financial investments, mainly equities.
The government can get away with playing with assumptions to achieve a desired result because the accounting system allows revaluations of assets to go to the operating result. That is, if you revalue land upwards, it is taken as revenue and, all other things unchanged, increases the operating result or the bottom line. So, if you look like making a loss, a revaluation of land can fix it. Similarly, the government has considerable holdings of financial assets. If its equity investments rise in value, that shows up as adding to the bottom line. Equally, of course, a drop in the value of the share portfolio shows up as a loss at the bottom line.
The Treasurer, I understand, is aware of this flaw in the accounting system and I am advised has often in the past said it should be changed. Indeed, several years ago he said that movements in the value of the territory’s assets give an unrealistic picture of the impact of a government’s policy and managerial decisions. He suggested that the effect of asset priced movements should be recorded with the accounts but separately from transactions resulting directly from economic activities. I agree with those sentiments he has previously expressed.
For those who might be having a struggle in understanding what this is all about, maybe a simple example would be to look at a person who might own a farm producing wool and cattle and who may also hold some bank shares. You make a loss on your wool and cattle but, with no effort on your part, the shares go up in value more than what you have lost on your primary production. Does that mean you have made a profit even though you have not sold your shares? No, it does not. For the next three years you can see that you are going to make a loss on your primary products, so to make things look better you assume that the value of the shares will rise and land values will rise too. In the end, you find you have got to sell things and you treat that as income. If that is the case, you are in trouble. But that is essentially the underlying philosophy behind the accounts that we are being presented with.
You can see how much the current system used by the government covers up what is happening as a result of the government’s overspending by looking at the government financial statistics. I draw members’ attention to page 338 of budget paper No 3, where it is clear that the government, and all Canberra residents and businesses with it, are in serious trouble. In 2003, the net operating balance, which is the end result of all the government’s revenue and spending activities for 2005-06, was forecast to be negative—that is, a deficit of $19 million. Now the deficit on the net operating balance for 2005-06 is—wait for it—$356 million. These figures are in the government’s own budget papers. For the following three fiscal years, the net operating balance is forecast to be negative $284 million, negative $263 million and negative $248 million. That is a far cry from the surpluses the government would like you to believe in the budget headlines. The difference is made up by very optimistic assumptions about the future value of the
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