The recently released 2024-25 ACT budget has a projected annual interest bill on borrowings of $855 million by 2027-28.
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It poses the question: what could Canberra, and more specifically the ACT government, do with an extra $855 million each year?
This interest expense is related to the ACT government's total borrowings which are projected to be $19.35 billion in 2027-28 (and over $6 billion of this is new borrowings over the next four years).
Before exploring the question posed, it is worth reflecting on where the almost $20 billion of debt might have come from. There are a few areas worth highlighting:
- Investment in infrastructure - the Chief Minister will say the debt has come from "record investment in infrastructure". This may be true but have we been paying $1.50 for $1 widgets in doing so? The abandoned HR system and Campbell Primary School modernisation projects are obvious examples of an approach to procurement that may be unnecessarily contributing to the growing debt. Do we know if there are any major infrastructure projects that did not go to the lowest-priced qualifying tenderer, i.e. meaning we have paid more than we had to?
- Staffing expenses - since the 2011-12 ACT budget, ACT government employee expenses have grown from $1.1 billion to $3.3 billion. This is a 200 per cent increase. In that time, assuming an average wage price index increase per annum of 2.5 per cent, wages have risen by around 37 per cent. Over the same period, Canberra's population has grown by just under 30 per cent from 357,000 to just over 460,000. So, assuming your employee expenses grow in line with wages and population growth (which I acknowledge is a very simplistic exercise), you would see your employee expenses growing by just under 80 per cent - not 200 per cent. This is a very large gap that needs further exploration. This 120 per cent gap is over $1 billion every single year.
- COVID is often mentioned as a significant contributor to the debt, however, in response to a question on notice in budget estimates last year, the Chief Minister confirmed the COVID contribution to borrowings, while material, was less than $700 million.
So to the main question - what could be done with an extra $855 million?
Here are some very simplistic illustrative examples:
- In 2027-28, Canberra Health Service is forecast to spend $1.6 billion on staff expenses - an extra $855 million would pay for over half the Canberra Health Services staff in 2027-28.
- In 2027-28, the ACT government Education Directorate is projected to spend just over $1 billion on staff - an extra $855 million would pay for almost all the education staff.
- Estimates for a city stadium are around the $700 million mark
- And an example from my personal area of interest - adequate housing for all Canberrans. At a median house price of $1 million, the ACT government could deliver 855 public housing houses every year. And at $600,000 for a unit, over 1400 units each year. There would be no housing crisis if this level of investment was possible.
Borrowing by government is not, in and of itself, necessarily a bad thing.
But when the interest bill becomes so large it starts crowding out spending by the ACT government on essentials like more nurses, police or a stadium, it's time to stop and think about the scale of the borrowings.
Is it time for the ACT government to start to commit to a plan about how they'll reduce the borrowings, in order to reduce the interest being paid?
And is it time to commit to reducing future borrowings so as not to add to the debt and interest payable?
It is incumbent on the government to tell Canberrans how they will answer questions about repaying our debts.
- Dan Carton is the former chair of Havelock Housing and the former chief economist at Defence Housing Australia.