The state of the territory’s finances has been the subject of a number of Institute for Governance and Policy Analysis seminars, which have highlighted an underlying deficit in the order of $95 million despite massive increases in taxation.

Net debt (excluding superannuation related investments) at June 2018 was $1.302 billion. By comparison, five years earlier at June 2013, net debt was just $190 million. Net debt is a useful measure to judge the overall strength of the government’s fiscal position. A positive position indicates that cash reserves and investments are lower than gross liabilities, which of course places a call on future revenues to service these liabilities.

Net debt is forecast in the 2018-19 budget papers to increase to $2.835 billion by the end of 2022. In other words, the government has committed in its budget papers to increase net debt at the rate of more than $1 million a day, or more than $365 million a year for four years. Increase in debt at such a rate is difficult to explain if the operating budget is really in a sound position.

One could be excused for thinking that the more than doubling of net debt over the coming four years relates to the light rail project, and that at least there would be some transport infrastructure, albeit costly and inefficient, to show for the increase in debt. That would be a mistaken view. The 2017-18 financial statements show that there are costs related to public private partnership commitments that are payable more than five years from now that total $1.605 billion. While some of these costs relate to the ACT courts, they are primarily for light rail stage 1. In other words, a substantial proportion of the costs of the light rail stage 1 project will not hit the territory’s budget until after 2022. It would be deeply concerning if the new borrowings over the forward estimates are servicing existing debt.

At June 2018, the net financial worth  of the general government sector was negative $662 million. Net financial worth is the “amount by which total financial assets exceed financial liabilities”. A negative net financial worth means the financial assets are not sufficient to cover financial liabilities. At June 2017, new financial worth was negative $419 million, a deterioration of $243 million in just one year. By way of comparison, as at June 2013, the net financial worth was a positive $767 million. In other words, ACT’s net financial worth has deteriorated by $1.429 billion in the past five years.

The territory was committed to tax reform by Katy Gallagher when she was the chief minister. We have previously pointed out that there has been significant departure from the original tax reform package, and that this along with incoherent policies on land supply has had major impacts on low to moderate income households. Tax revenue has increased by 8.2 per cent a year over a four year period while the economy grew at a meagre 1.1 per cent a year. Concessions and rebates have not kept pace with the tax increases. Further, introduction of additional levies and increases in flat taxes have made the tax system more regressive.

Contrary to the objectives of the original tax plan released by the Gallagher government, the tax system has become more regressive. A careful look at the ACT Treasury socioeconomic analysis on taxation and concession policy highlights that besides the inordinate increase in tax rates, the increase in flat charges and erosion of concessions have made the tax system more regressive, placing an increasing burden on those on low to moderate incomes.

The financial burden of increased tax on low to moderate income households has not translated to adequate funding of priority services such as health, housing and education. Recent analysis by ANU academics shows Canberra high school students are lagging up to 16 months behind their peers from similar backgrounds. The situation of Aboriginal students is far worse.

The health system gives every appearance of being in crisis due, in part, to the lack of adequate funding. Put simply, funding for growth in the cost of healthcare has been constrained at levels well below those needed to meet the increase in health inflation, population growth and technology changes. The clinicians and other professionals working in the hospital system deliver excellent services to the community. However, the effect of funding constraints is seen, among other things, in elective surgery waiting lists. Patients waiting for surgery, typically are in pain and discomfort, and do not have private health insurance to have timely access to surgery.

The most recent data from the Australian Institute of Health and Welfare shows that patients in both the ACT hospitals waited longer than clinically recommended in all categories. The ACT also underperforms in wait times compared to similar hospitals elsewhere. For example, for category 1 patients (surgery recommended within 30 days), the variance from peer group average was 62 per cent at Calvary and 36 per cent at the Canberra Hospital. In all, about 1700 patients waited longer than clinically recommended for their surgery.

The ACT budget is clearly under significant strain despite inordinate increases in taxation, and does not appear to allocate sufficient resources for priority services particularly for the vulnerable and the disadvantaged. The taxation system now is more regressive than when the reform commenced. The financial position has deteriorated and significant costs of light rail stage 1 are yet to hit the budget. Structurally, the budget is in deficit, and the net debt will more than double over the forward estimates.

Jon Stanhope is former chief minister and professorial fellow at the Institute of Governance and Policy Analysis, University of Canberra. Khalid Ahmed was an executive director in ACT Treasury, and is currently adjunct professor at the Institute of Governance and Policy Analysis and works in the private sector.