“Since 2012-13 the ACT has attained a reputation as a laggard, the worst performing jurisdiction in Australia, a status that is currently reflected in the forward estimates.” More ACT budget revelations from JON STANHOPE & KHALID AHMED. 

The ACT is unique in not having posted a single surplus, for more than a decade, including in the period before the pandemic, when other states were recording surpluses. 

Notably in the years before 2012-13, the ACT’s operating budget performance was invariably better than the state average. 

However, since 2012-13 the ACT has attained a reputation as a laggard, the worst performing jurisdiction in Australia, a status that persisted through the pandemic years, and is also currently reflected in the forward estimates.

Unfortunately, there has been in recent public discussion about the state of the ACT finances some misunderstandings about the nature of the Commonwealth Grants Commission’s (CGC) assessments when recommending distribution of the GST pool among states and territories.

The Grants Commission has got the balance right

The Commission’s methodology and data are heavily contested and scrutinised by all states. Its assessments are more transparent than other resource distribution processes such as annual budgets, in relation to which cabinet deliberations are confidential. 

The CGC methodology has received criticism from some for being too complex, and from others for not considering the finer differences in individual states’ circumstances. However, it is generally accepted that the Commission has got the balance right.

It is not unusual, however, for the CGC to be blamed for a state’s financial woes – eg that the Commission does not adequately compensate for a particular circumstance unique to that jurisdiction, or that it takes away too much of its hard-earned money to give to others less deserving. 

While politically convenient and popular, such arguments do not stand the test of data and scrutiny and invariably have no merit.

ACT Treasurer, Andrew Barr has been claiming recently that the ACT’s current fiscal imbalance was made worse because it could not tax the Commonwealth and that GST revenue did not fix the problem. Mr Barr was also urging the Commonwealth to increase its infrastructure investment because its debt is projected to be half that of the states.

Release any submission made to the CGC, Mr Barr

If Mr Barr seriously thinks that the ACT is not appropriately compensated for its inability to tax Commonwealth activity then surely he would have directed the ACT Treasury to present all relevant evidence to that effect to the Commission to consider in its periodic methodology reviews. 

We would, therefore, urge Mr Barr to release any submission he has made to the CGC to that effect together with the Commission’s response, most pertinently, the basis on which the Commission might have rejected his submission.

Mr Barr could also, of course, ask the federal treasurer to direct that the ACT’s grievance with the Commission’s methodology be addressed. 

Indeed, this path was adopted by WA when, due to its strong own source revenues from mining, its relativity dropped and the Commonwealth Government intervened and directed the Commission to place a “floor” on the relativity for WA. 

This was accompanied by an undertaking that no other state or territory would be worse off with the Commonwealth providing the funds that otherwise would have been available. In 2023-24, “no worse-off” payments amounted to $4.9 billion, which in effect is the benefit WA received.

If WA can get a better deal, why not the ACT?

If WA’s Labor government could secure such an outcome from the then Liberal federal government, surely Mr Barr would be in a much better position to secure compensation from the Commonwealth for its presence in the territory, if he genuinely believes that the ACT is being disadvantaged because it cannot tax the Commonwealth. 

Claims of being “shortchanged” in GST distribution may resonate with a poorly informed media, however, they appear to be a diversion from the real budgetary problems that we have previously highlighted.

In relation to other payments to states and territories, the Terms of Reference from the Federal Treasurer to the CGC dispel any notion of special treatment, and instruct the Commission to include all payments including Specific Purpose Payments and payments under health, housing and homelessness, and education agreements in its assessments, recognising that these provide budget support for standard state services. 

This means that even if a state is able to secure more funding through an agreement with the Commonwealth, the amount in excess of its fair share, as assessed by the Commission, would be distributed away to others.

By way of example, in the 2023 Update, the ACT (along with some other states) received a greater share of the national infrastructure investment programs (rail, national roads network) and national health reform funding. 

Consequently, the ACT’s GST payment was reduced by $31 million. It is therefore reasonable to ask if and when Mr Barr, or indeed any government, claims to have secured a special deal, whether the funding is to be excluded from CGC equalisation, and if not, then what would be the decrease in the share of GST?

Important role of Commonwealth leadership

The Commonwealth Government has an important leadership role in setting national priorities across and within policy areas, in consultation with states. It can also drive and facilitate reform that states may not otherwise pursue.

For program delivery, and particularly for infrastructure investment, the Commonwealth can enforce a rigour, discipline and consistency to project development, procurement and delivery that states may, because of localised vested interests, be inclined to ignore.

This could include setting requirements for robust business cases, minimum benefit to cost ratios (or hurdle rates) before projects can be funded, and open and transparent procurement processes. 

We note, for example, that Infrastructure Australia’s prioritisation and assessment of projects was, traditionally, reasonably robust. 

However, we fear that is no longer the case. For example, in supporting the light rail project in the ACT it has signed off a project for which, (a) the ACT government has refused to release the business case, (b) the ACT auditor-general has found serious problems with the project’s benefits and costs, and (c) a secret, behind-closed-doors, single-select procurement of $577 million has been undertaken.

Ironically, the ACT government can point to the Commonwealth funding as the business case in itself. 

Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.