❓ Mr Brown questions the Premier regarding statements made by Mike Nahan in The West Australian about the State budget's deficits, borrowing practices, and credit rating. The Premier refutes Nahan's claims, citing balanced budgets, capital works funding, and strong financial management.
AnsweredQoN 95Legislative Assembly
QuestionView source ↗
95. Mr BROWN to the Premier:
(1) Is the Premier aware of an article that appeared in The West Australian newspaper on Friday, 12 May 2000 by Mike Nahan concerning the State budget?
(2) If so, is the Premier aware that in the article Mike Nahan makes the following observations, namely-
(a) the budget has been in deficit in each of the last four years;
(b) the Government has been borrowing to meet operating or running costs for each of the last four years in short it has been relying on the proverbial bankcard;
(c) the Government has been able to run these deficits without losing its Triple A credit rating only because of gains from privatisation;
(d) the deficits are raised because running costs exceeded taxes, grants and other income.
(3) Are the statements made by Mike Nahan correct?
(4) If not, which statements are incorrect?
(5) Why are those statements incorrect?
(1) Is the Premier aware of an article that appeared in The West Australian newspaper on Friday, 12 May 2000 by Mike Nahan concerning the State budget?
(2) If so, is the Premier aware that in the article Mike Nahan makes the following observations, namely-
(a) the budget has been in deficit in each of the last four years;
(b) the Government has been borrowing to meet operating or running costs for each of the last four years in short it has been relying on the proverbial bankcard;
(c) the Government has been able to run these deficits without losing its Triple A credit rating only because of gains from privatisation;
(d) the deficits are raised because running costs exceeded taxes, grants and other income.
(3) Are the statements made by Mike Nahan correct?
(4) If not, which statements are incorrect?
(5) Why are those statements incorrect?
AnswerView source ↗
Answered
22 November 2000
Response time
105 days
The Minister Replied:
(1) & (2) Yes.
(3) - (5)
(a) The Government committed to achieve a net operating surplus in 2000-01 in its budget. For previous years the budget commitment was to achieve a balance on the Consolidated Fund. That was achieved in all years since 1993-94.
(b) The Government has not been borrowing to meet operating or running costs for each of the last four years. Borrowing that has taken place has been to fund the record capital works program.
It is common in business, and for government, to borrow for capital spending. With capital spending at record levels, there is a need for borrowings to top up the contribution that cash surpluses from operating activities and asset sales are making to meet these requirements.
Although the operating statement does not include capital payments, it includes the consumption of capital in the form of depreciation and other non-cash expenses such as the movement in superannuation and leave liabilities. There is no direct link between borrowing and the operating result.
(c) The State's credit rating has been maintained due to its economic strength and the Government's record in financial management, in particular, its control over net debt levels.
Net debt decreased from $8.5 billion at 30 June 1993 to $5.0 billion at 30 June 2000. That's $3.5 billion over seven years while debt retired from the proceeds of major asset sales (BankWest and the Dampier to Bunbury natural gas pipeline) amounted to only $2.9 billion.
(d) The deficits are not raised because running costs exceeded taxes, grants and other income. As outlined above, although the operating statement does not include capital payments, it includes the consumption of capital in the form of depreciation and non-cash expenses such as the movement in superannuation and leave liabilities.
I have included some further points on the Western Australian Budget that are relevant to the article by Dr Nahan:
· Through the adoption of the Australian Bureau of Statistics (ABS) developed GFS accrual accounting system, the Government has produced a credible measure of the budget bottom line;
- This is an improvement over the previous budgets in which there were numerous divergent measures of the bottom line, which caused confusion and scepticism.
. Although the budget was expected to finish the 1999-2000 year in deficit by around $60 million, this was about $160 million better than expected at the start of the year. It should be noted that pre-audited final data published in the Government Financial Results Report (released on 29 September 2000) showed a final operating deficit of just $9.8 million for 1999-2000. Moreover, the budget outcome is forecast to turn to a surplus of $42 million in 2000-01;
· Mineral royalties are up and payroll tax receipts are expected to improve in line with continued employment growth. Business investment is rising and expected to once again drive the Western Australian economy.
It is also interesting to note the views of economic commentators concerning the State budget in other newspaper articles published on the same day.
· Immediately following our 11 May 2000 budget, the editorial and an article by Tony Harris in the Australian Financial Review classed the budget as a model for other jurisdictions, comparing and contrasting the character of the Western Australian and Commonwealth budgets. In particular:
- That Western Australia had not factored in the proceeds of future asset sales to improve its cash outcome. The recent announcements in relation to AlintaGas and Westrail Freight sales will have significant beneficial impacts on the projected surplus for 2000-01. However, the Government continued its policy of formulating budgets without asset sales as a financing "fiddle".
· Additionally, the editorial points out that the best contribution the Government can make to the State's growth is to keep State debt low.
- In 1992-93, total public sector net debt was $8.5 billion (or 19.6% of GSP). The State's net debt is forecast to be $6.0 billion (8.4% of GSP) at 30 June 2001 and to continue to decline over the medium term. The recent asset sales announcements will further reduce public sector debt.
(1) & (2) Yes.
(3) - (5)
(a) The Government committed to achieve a net operating surplus in 2000-01 in its budget. For previous years the budget commitment was to achieve a balance on the Consolidated Fund. That was achieved in all years since 1993-94.
(b) The Government has not been borrowing to meet operating or running costs for each of the last four years. Borrowing that has taken place has been to fund the record capital works program.
It is common in business, and for government, to borrow for capital spending. With capital spending at record levels, there is a need for borrowings to top up the contribution that cash surpluses from operating activities and asset sales are making to meet these requirements.
Although the operating statement does not include capital payments, it includes the consumption of capital in the form of depreciation and other non-cash expenses such as the movement in superannuation and leave liabilities. There is no direct link between borrowing and the operating result.
(c) The State's credit rating has been maintained due to its economic strength and the Government's record in financial management, in particular, its control over net debt levels.
Net debt decreased from $8.5 billion at 30 June 1993 to $5.0 billion at 30 June 2000. That's $3.5 billion over seven years while debt retired from the proceeds of major asset sales (BankWest and the Dampier to Bunbury natural gas pipeline) amounted to only $2.9 billion.
(d) The deficits are not raised because running costs exceeded taxes, grants and other income. As outlined above, although the operating statement does not include capital payments, it includes the consumption of capital in the form of depreciation and non-cash expenses such as the movement in superannuation and leave liabilities.
I have included some further points on the Western Australian Budget that are relevant to the article by Dr Nahan:
· Through the adoption of the Australian Bureau of Statistics (ABS) developed GFS accrual accounting system, the Government has produced a credible measure of the budget bottom line;
- This is an improvement over the previous budgets in which there were numerous divergent measures of the bottom line, which caused confusion and scepticism.
. Although the budget was expected to finish the 1999-2000 year in deficit by around $60 million, this was about $160 million better than expected at the start of the year. It should be noted that pre-audited final data published in the Government Financial Results Report (released on 29 September 2000) showed a final operating deficit of just $9.8 million for 1999-2000. Moreover, the budget outcome is forecast to turn to a surplus of $42 million in 2000-01;
· Mineral royalties are up and payroll tax receipts are expected to improve in line with continued employment growth. Business investment is rising and expected to once again drive the Western Australian economy.
It is also interesting to note the views of economic commentators concerning the State budget in other newspaper articles published on the same day.
· Immediately following our 11 May 2000 budget, the editorial and an article by Tony Harris in the Australian Financial Review classed the budget as a model for other jurisdictions, comparing and contrasting the character of the Western Australian and Commonwealth budgets. In particular:
- That Western Australia had not factored in the proceeds of future asset sales to improve its cash outcome. The recent announcements in relation to AlintaGas and Westrail Freight sales will have significant beneficial impacts on the projected surplus for 2000-01. However, the Government continued its policy of formulating budgets without asset sales as a financing "fiddle".
· Additionally, the editorial points out that the best contribution the Government can make to the State's growth is to keep State debt low.
- In 1992-93, total public sector net debt was $8.5 billion (or 19.6% of GSP). The State's net debt is forecast to be $6.0 billion (8.4% of GSP) at 30 June 2001 and to continue to decline over the medium term. The recent asset sales announcements will further reduce public sector debt.
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