“Walk into a waiting room in a Canberra emergency department and ask the patients whether the doctors or nurses treating them were inefficient.” JON STANHOPE & KHALID AHMED look at where they think economist Saul Eslake’s report misses the target.

Apart from conclusions that are self-evidently correct, there are concerning aspects to Saul Eslake’s report to the Legislative Assembly Committee inquiry into fiscal sustainability.

Independent economist Eslake was commissioned to examine the ACT’s deteriorating financial position as part of a parliamentary inquiry established in December.

His final report was delivered on May 19 and the committee subsequently drew heavily on his findings in its own final report, released on August 26, which concluded that the ACT’s financial position was unsustainable and that government policy decisions had driven its deterioration.

Among other things, we are concerned about the report’s assessment of excess expenditure, and thereby the potential for savings, in various service areas. 

Health is identified as a service area spending around 35 per cent more than would be deemed efficient.

Walk into a waiting room in a Canberra outpatient or emergency department and ask the patients whether the doctors or nurses treating them were inefficient, we are certain the answer would be to the contrary; that there need to be more of them.

We are also certain that if you were to confront a tired doctor or a nurse or an allied health worker, and ask them how they could become 35 per cent more efficient, there would at best be blank looks of confusion.

Hospital systems across Australia are quite homogenous with common professional bodies, accreditation protocols and clinical pathways, consistent regulatory systems, uniform reporting and mobility of professionals.

It is difficult to conceive that just two hospitals in this national clinical system would be so far out of the norm in their practices and processes. Could, perhaps, the “benchmark” be wrong?

More broadly, to accept a medium-term fiscal scenario in the Eslake report, we must first believe that either the ACT Government or the Canberra community will go through a metamorphosis, that is something that requires a fundamental change in beliefs and ways of doing things and, as such, is rare and highly unlikely.

The report does not provide a blueprint for a transformation whereby the net operating balance steadily improves to around 10 per cent of the budget by 2035-36.

That is a turnaround of a quarter of the total budget from a deficit of 15 per cent, in a decade, a scenario referred to as “relatively optimistic”.

Surpluses of that magnitude are possible as one-offs, but the fiscal discipline required over a decade to build up to such surpluses, especially from the current deep crisis in the ACT’s finances, will require growth in taxation and cuts to services without any dividend to the community along the way.

There is no evidence the government could exercise such discipline, and clearly the entailing revenue growth and cuts to services would not be sustainable.

The scenario is far-fetched and the assumptions are questionable, if not mistaken.

Essentially, the projections are based on anticipated growth in the economy as forecast in the recent budget.

That economic growth is formulaically assumed to provide growing revenue and expenditure capacity. 

However, around half of that economic output is immune from ACT Government taxation, being related to Commonwealth government activity. It is notable that it is this exempt part of the economy that has largely contributed to economic growth.

The rest of the economy, that is subject to ACT Government taxation, has lingered under heavy taxation and constraints on land, a key factor of production.

Household consumption, retail trade and private investment in dwellings and business have in the main remained flat in real terms in recent years.

For the implicit revenue growth to be realised in the “optimistic” scenario, an increase in tax rates would unquestionably be necessary, as has been the case in the past several years (ie a further burden on households and businesses).

The report also includes “A more pessimistic (but still plausible) scenario” under which the budget will remain in deficit albeit decreasing to around 1.5 per cent of the budget.

A more objective projection would be based on past behaviour, that is the actual revenue and expense growth rates during the period of the Greens-Labor coalition being maintained in the coming decade. Notably, this would include above-average taxation and cuts to services, particularly health, as has been the reality.

No detailed modelling is required to conclude that this is unsustainable.

The financial parameters that brought the ACT’s finances to this state are unsustainable. For the record, we pointed out the unsustainability of the territory’s finances on those parameters, including before the pandemic.

In short, Eslake appears to have looked at the budget with the eye of an economist without having due regard to the relationship of the economy with the budget.

In addition, it is a fatal mistake to believe this government’s budget forecasts. 

Notably, a few weeks after the tabling of the report, the deficit had deteriorated by around $200 million due to a further shortfall in revenue and a blowout in expenditure against the original forecasts that were used as a baseline.

Is a metamorphosis possible whereby the government rethinks its priorities and adopts the core principles of public financial management, and maintains that for, say, a decade?

That would involve abandoning or deferring some of the pompous high-cost/low-value projects, a feature of this government, and instead focus on boring things such as recruitment to unfilled positions in health and education and the provision of public housing and affordable land for housing.

It would, of course, necessitate standing up to the Greens and forcing them to articulate and justify their priorities to their base and working-class families excluded, say, from the housing market and denied access to specialist medical care. That would be the easy part. 

It would also require standing up to the vested interests and rent seekers that surround and clearly intimidate the government. That, it appears, is the hard part.

Relevantly, the chief minister was just recently off overseas on yet another trade mission as teachers prepared to go on strike.

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

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