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This was published 7 years ago
ACT budget in deep trouble, according to new analysis from former Treasury official Khalid Ahmed
The ACT budget is in deep trouble, according to a former senior Treasury official, who has raised the spectre of a budget blow outs or severe cuts to spending in the coming years.
Khalid Ahmed said the budget had built in a significant $80 million of cuts in the next financial year, which would be extremely difficult to achieve.
Khalid Ahmed is not confident the forecast return to surplus will hold.Credit: Rohan Thomson
The government has completely rejected his analysis, standing by predictions of a return to surplus and saying no spending cuts are needed to meet forecasts.
Speaking at a seminar on the state of the budget on Thursday, Dr Ahmed raised significant doubts the government can meet its forecasts over the next four years.
There appeared to be "two parallel worlds" – the government's budget forecasts and what happened in reality, he said.
Over the past seven years since 2008-09, revenue had grown at 4.9 per cent a year and spending at 5.4 per cent (not including the Mr Fluffy buyback), with the divergence appearing from 2012-13.
Dr Ahmed's figures showing a divergence in spending and revenue from 2012-13, and a sharp cut in spending in the next budget. The figures from figures from 2016-17 are budget forecasts. All of the figures exclude the Mr Fluffy scheme.
In the coming four years, revenue was forecast to grow at 3.9 per cent and spending at 3.7 per cent – a major contraction and clearly inconsistent with past trends, Dr Ahmed said.
Even on those forecasts, spending would need to be cut significantly in all areas other than health, education and transport, just to meet the budget numbers.
But if spending continued at the trend rate of the past seven years, up 5.4 per cent a year, then the government would have to find an extra $280 million of revenue in the final year of the forward estimates, 2019-20, to plug the gap, he said.
Dr Ahmed, who was head of policy co-ordination and development in ACT Treasury until mid 2013, has been critical of current government budget policy, especially its handling of land prices.
He said either the predictions of a return to surplus were wrong, or the government would have to make big cuts to spending or increases to revenue to meet its forecasts.
That meant hard choices, and such choices reflected the city's values, Dr Ahmed said, pointing to the desperate need to address Aboriginal disadvantage.
"The budget choices are quite stark," he said. If the forward estimates are to hold, services will need to be cut – that is implicit in the published forward estimates. "If services are to be maintained, policy decisions will need to be made on raising more revenue."
But a spokesman for acting Treasurer Yvette Berry said the trend spending and revenue figures used by Dr Ahmed were from times when the budget was hit by economic shocks such as the global financial crisis, federal funding cuts, and federal staff and spending cuts that constrained economic growth.
Dr Ahmed is not confident the forecast return to surplus will hold, saying the figures are tentative. As the cost of the Fluffy demolition phases out, new costs such as light rail phase in, he said. The past five budgets have all forecast a return to surplus in the out years, but each time the forecast has been abandoned, and pushed back in the next budget. This year's budget predicts a return to surplus in 2018-19.
Successive budgets forecasting a return to surplus that never eventuates.
Dr Ahmed said the balance sheet was "not healthy to put it mildly". Net financial liabilities were 51 per cent of revenue in 2008-09, and 200 per cent of revenue in the most recent financial year.
The territory's net worth had dropped from $14.5 billion to $12.4 billion over the period – an erosion that should be cause for concern, he said. Net debt was set to increase further over the forward estimates – by another $620 million; and net financial liabilities were set to increase by another $840 million.
Ms Berry's spokesman said the budget had returned to a sustainable footing after shocks of recent years and was on track to return to balance in 2018.
"None of Dr Ahmed's opinions have given the Treasury team reason to change their assumptions," he said.
"Dr Ahmed's opinions are based on his own assumptions about both spending and revenue which differ from those used in putting the budget together ... The spending growth scenarios shown by Dr Ahmed are just that – hypothetical scenarios."
Dr Ahmed's figures for growth in health and education spending, 7.8 per cent a year for health and 6.5 per cent for education, were not realistic. Health spending was forecast to grow at 4.4 per cent and schools at 3 per cent.