Australia

The cost of owing money


By ERWIN CHLANDA

The current Budget Mid Year Report raises the question: How can the NT have a debt of more than nine billion dollars and still boast a balanced Budget?

No worries. You just send 12% of the Budget to banks, wherever in the world they may be, to service loans. Best guess it is more than $400m. 

And that’s just paying interest, not repaying principal.

Also, these figures are six months old, before the sharp interest rises which will whack the 2024/25 Budget.

“A balanced Budget means revenue equals expenditure. It’s got nothing to do with the debt. The debt is past expenditure,” says Rolf Gerritsen, the Charles Darwin University’s Professorial Research Fellow in Alice Springs. (He is due to retire in two weeks’ time.)

On the balance sheet, interest payments are just another expenditure, such as hospitals, roads, schools, public housing and so on. 

You’d get a lot of these for $400m, but so long as receipts match spending, Treasurer Eva Lawler (pictured) can make statements such as this: “In 2019 our government released a plan for budget repair, and the Mid-Year Report confirms the strategies implemented to achieve those outcomes are working.

“We have set a target of growing our economy to $40 billion by 2030.

“We are determined to achieve this target as we want to see the NT reach its full potential.”

Prof Gerritsen takes a wry view about Budget electoral cycles. 

“A party wins office because they made all these promises. First year in office they implement promises. 

“Second year in office they claw back the money they had unwisely spent, usually by demolishing what their predecessors built.

“The third year, just before the election, the pork barrels are rolled out and away they go.”

Prof Gerritsen says the current one is a classical Mid Year Report. 

“What they are saying, the fisc is in good shape. So when the Budget comes ‘round next May they can announce all sorts of new spending measures, obviously with the intent of being re-elected. 

“The Budget is in good shape, we can afford this,” is the motto. 

“So we’ve got a bogus deficit estimate in the Budget papers too.”

Borrowings this year will amount to $9,140,773,000 – that’s just over nine billion dollars.

The NT Government doesn’t disclose where the loans are coming from.

“I’m not privy to the Treasury’s loan negotiations,” says Prof Gerritsen. But the Commonwealth Government Public Debt Interest Calculator sets the default long-term nominal interest rate for the 10-year bond currently at 4.8%.

At that rate our annual loan interest bill would be $432m – money the people of the Territory will of course never see again.

The NT’s 2022/23 revenue was $7.6 billion, including $5.3 billion in grants, mostly from Canberra.

IMAGE at top: Professor Gerritsen and illustration from Treasurer Lawler’s Facebook site.



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