“Despite the regular refrain of a ‘budget emergency’ from the usual fiscal scolds, the recurrent budget spending is close to back in balance,” said Graeme Cuxson, Principal Consultant at Pitcher Partners.
“That is to say, once you separate out the $36 billion of capital spending in the 2016-17 Budget, there’s not much left of the headline underlying cash deficit.
“As any good accountant knows, long-lasting, income-producing investments should be treated as capital assets on the balance sheet, not as a one-off hit to operating expenses. Finance costs and depreciation are then taken into account over the life of the asset.
“The state governments treat long term, income-producing investments as capital assets, not operating expenses. Businesses do it too – in fact, tax law requires them to.
“But federal government doesn’t. It’s time for it to adopt this standard budgeting practice. If it’s good enough for commercial tax law, it should be good enough for the federal government.”
Cuxson emphasises that treating infrastructure investment as a capital asset, instead of an operating expense, will result in better, more thoroughly planned infrastructure and better economic outcomes.
“Let’s be clear: we should only be instituting this standard for ‘good’ capital investments. An independent arbiter, such as the Productivity Commission, would need to give its seal of approval.
“For governments keen on getting re-elected, at the moment there is little short-term fiscal incentive to choose ‘good’ projects – the positive growth and revenue impacts of investing in better projects will take years to materialise.
“But treating infrastructure projects as capital investment instead of recurrent spending will create the headroom for ‘good debt’ to fund infrastructure projects – stimulating economic demand and boost supply side capacity.
“And, by creating a strong incentive for more transparent cost-benefit analysis, it will help ensure our politicians select better projects.
“That will benefit the Budget, but also the Australian economy as a whole. And that’s also good news for governments keen on looking economically responsible to voters.”
For further information please contact:
Graeme Cuxson, Principal Consultant, Pitcher Partners Consulting, 03 8612 9258
Sabine Wolff, Media and Communications Advisor, Pitcher Partners, 0419 529 577