The financial crisis in the Northern Territory

2601 Bob Beadman OKEditor, you asked whether I might do an opinion piece on this current debate.

 

Clearly, budget outcomes rely on two simple issues – income and expenditure. 

 

On the income side of the ledger, the Northern Territory is hugely reliant on our share of the Goods and Services Tax (GST). We have been gutted.

 

On the expenditure side, the Northern Territory Government has been under enormous pressure to spend. The armchair experts (usually in leafy suburbs on the east coast) seem to expect that the Territory has a limitless capacity to provide gold plated social services, of EVERY kind found in the big cities, to every small pocket of population in the bush.

 

The Australian Government was quick to appoint a Royal Commission into the Protection and Detention of Children in the Northern Territory (not the States who all have serious problems, I notice) but slow to assist with implementation of the 189 recommendations. And it has for decades tried to get away with providing the capital funds for something, and then dumping the recurrent costs of operating it on the NT. We could go on and on.

 

What follows is an edited version of a talk I gave to the Historical Society in Darwin in June 2018, titled “Fracking, Aborigines, and the GST”. It reveals most of what was on my mind.

 

BOB BEADMAN (pictured)

 

 

The Goods and Services Tax (GST)

 

A bit of history:

 

The States ceded income tax powers to the Commonwealth in WWII. Ever since the State Premiers and Treasurers trekked to Canberra to plead for a bigger share of the financial pool, and for a bigger pool.

 

The size of the pool was resolved to some extent about 2001 by allocating all GST receipts to share amongst the States. Some then lobbied for backdoor funding. Western Australia has been spectacularly successful in recent years, and I understand they have been rewarded with over $2 billion above their GST share. This year the NT will get $259.6m above our GST share to compensate for sharp losses.

 

The Commonwealth Grants Commission (CGC) has been around since 1933 and advises the Commonwealth on interstate relativities. The Commission adopts Horizontal Fiscal Equalisation principles. Or allocation “according to need” for the layperson.

 

The aim is to provide each jurisdiction with adequate funds to deliver an average level of services. (There is no catch-up money here to allow the NT to address the infrastructure deficit we inherited at the time of Self-Government).

 

Obviously, with an enormous geographic footprint, a tiny population living mainly in the bush (as distinct from those people huddled in cities on the eastern seaboard), and around 34% Indigenous (next highest jurisdiction is about 4%), it is going to cost more to deliver service X here than it would in Victoria.

 

Mining Royalties feature strongly in revenue collection (WA). And the Indigeneity factor features strongly in assessing needs (NT).

 

It would appear that the main reason both these jurisdictions are in tight financial circumstances is because each has tailored their recurrent budgets to peak revenue years (WA on iron ore, and NT on the Indigeneity loading), and an assumption that would continue forever.

 

States always complain

 

Western Australia’s share of the GST dropped markedly in recent years, driven down by massive iron ore royalties. It got to as low as 30c in the dollar.

 

The Northern Territory’s share has dropped from a high of around $5.60, to $4.26 for the current year. We have been driven down by a declining share of the national Indigenous population.

 

p2592 GST distribution by state CGC

Above: Recommended GST distribution, update 2018. Source: Commonwealth Grants Commission.

 

Is change on the way?

 

The Productivity Commission (PC) has recently completed a review of the CGC’s methodology on reference from the Treasurer. I believe there can be no argument that this review is a consequence of the level of complaint by WA about their share of GST.

 

Remember that the CGC has been in the business since 1933. It has a world-wide reputation for excellence. Its staff have provided consultancy services right around the world to central governments implementing Horizontal Fiscal Equalisation Principles in their funding relationships with their own states. Now we have government meddling.

 

Initially the PC planned public hearings in a couple of southern cities, but amazingly not Darwin. The Yothu Yindi Foundation (YYF) complained bitterly. The PC eventually came here. The YYF delegation, of which I was invited to be part, appeared at the hearing, and lodged a submission.

 

We strongly included points about the Australian Bureau of Statistics (ABS) approach to Census collection, and about the CGC’s practice of using Indigeneity as a cost-adjuster without determining “relative need” between the widely divergent circumstances of First Australians in different parts of the country.

 

I said at the hearing (and it was part of the YYF submission) that:

 

“It seems to me, for example, that a double university degree, double income family in their own home in Parramatta would have less value – should have much less value in the weighting that the Commonwealth Grants Commission would give to an Indigenous family with several inter-generational levels of welfare dependency, all unemployed and in a humpy in a remote community like Papunya.”

 

The then Treasurer (the Hon Scott Morrison MP) is on the public record as saying it appears that a State which has put in an above average effort on revenue collection like WA is penalised by the CGC methodology. And another jurisdiction, like the NT, is rewarded for blocking potential revenue by placing a moratorium on fracking. The writing was on the wall.

 

I warned the audience at Garma the last couple of years that given this thinking, it is only a matter of time before the Treasurer / Treasury turns its mind to where the wealth is generated in the Northern Territory. And that in turn leads you to the Land Rights divide. Would it be fair if policy decisions by the Commonwealth itself [the Aboriginal Land Rights (Northern Territory) Act 1976], or by the Land Councils in denying development consent, reduced Northern Territory GST revenue?

 

The PC handed its Report to the Treasurer on May 15, 2018, and he said he would release it the “next month”. We anxiously awaited the outcome.

 

The Northern Territory’s reducing share of the national Indigenous population

 

This is not a misprint.

 

A chart can be found on the Australian Bureau of Statistics (ABS) website showing the growth in the Indigenous population between the 2011 and 2016 Censuses, by State. There has been phenomenal growth in the numbers in Queensland, NSW, and Victoria in particular.

 

Explaining these numbers

 

The ABS has revealed a number of things:

 

  • The growth in many States cannot be explained by natural increase.
  • 80% of interstate Indigenous marriages are to a non-Indigenous partner, and the children then become Indigenous.

 

There are other issues that stare at one. Self-identification, whether as a consequence of the work of genealogists who find an Indigenous ancestor many generations ago (Tasmania for example), or for fraudulent purposes, is an issue. There is no testing of claims in the Census process.

 

Let me be clear – I am pleased that people would take pride in their Indigenous ancestry – my difficulty is with a methodology that doesn’t distinguish between the well-off, and others who have had a lifetime of deprivation. It is not a race thing for me, but a “needs” thing.

 

p2592 Indigeneity by state Census

 

Above: Changes in Aboriginal and Torres Strait Islander population, 2011-2016. Source: Census.

 

Draining funds from the Northern Territory

 

One newspaper dramatically described the loss of funds as “like taking foreign aid from South Sudan and giving it to Donald Trump”.

 

Draining funds from the bush

 

Both past and present Northern Territory Governments say that around 53% of outlays is spent on the Indigenous population that sits at around 30% of the total population.

 

These figures appear to be reached by apportioning departmental budgets to consumer groups. For example, if 95% of the prison population is Indigenous, then its reasonable to apportion 95% of Correctional Services entire budget as Indigenous expenditure. Ditto for the other departments. This might explain that it is more than a perception that a fair share of the Indigeneity GST loading doesn’t reach the bush.

 

This raises the spectre of senior public servants in high rise buildings in Darwin’s Central Business District having a portion of their costs attributed as Indigenous expenditure.

 

And between 2004-2016 the Northern Territory public service has grown by 40% against a population increase of 20%.

 

Postcript

 

Our anxious wait for the Treasurer’s response to the Productivity Commission’s Report on the GST confirmed our worst fears. He announced the States would be guaranteed 75 cents in the $. In future only 25% of the collected revenue would be distributed on a needs basis, as compared to 100% in the past. That spelled devastation for the NT! (And a huge win for WA!)

 

The Northern Territory will lose $3.4 billion in GST share between 2017-18 and 2021-22. No matter how much spin people might want to put on a pig, it is still a pig.

 

A final thought on borrowing. I’m attracted to the idea that it is unreasonable for this generation to pay cash for all the facilities others will enjoy in the future, and only fair future generations should share some of the financial load through loan repayments. But how much loan debt can we reasonably incur?

 

That is the question.

 

As for the notion that Self-Government has failed and that Canberra should take over, I subscribe to the view that no matter how bad a Northern Territory Government (and I agree we have had some shockers), returning to a Canberra administration is unthinkable.

 

 

Note: Bob Beadman is a veteran Territory public servant, now retired, with extensive experience in Indigenous affairs, a former chairman of the NT Grants Commission and coordinator general of remote services.

 

 

 

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16 Comments (starting with the most recent)

NB: If you want to reply to a previous comment, start your comment with this notation: @n where n is the number of the comment you want to reply to.
  1. Trevor Shiell
    Posted January 11, 2019 at 5:53 pm

    Lets not forget this is a two way thing.
    I am aware of several female friends who have mothered Indigenous children for both social reasons and to get the substantial benefits which go with being Indigenous.
    I also have seen contractors in a remote community having completed repairs on around 30 houses then having to return to house one to start again. Pretty lucrative work.
    I also recall seeing TV footage two years ago showing a group of Eastern states people being taken to the Top End and shown a house in disrepair, but the occupant insisting on being given a new house when there was a lot of evidence (not mentioned) that she really needed a scrubbing brush, some soap, a toilet brush a broom and a bit off elbow grease to improve her situation considerably.
    But the programme was structured to not offer these as an alternative as the rest of us would be expected to do.
    To see where the money has gone, and how effectively it has been used, visit Mt Barkley, near Conniston, or Pannels Well near Ambalindum – and this is the thin edge of the wedge.
    There will be readers who immediately consider this as racism. But my two closest friends are Indigenous men.
    I had an Indigenous tutor as a child and who virtually lived with my family and I grew up with their children.
    I also lived for a long time in a remote part of a Pacific Island country where if you wanted a new house you did not wait for the Government to provide – you just got in and built it.

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  2. Bob Taylor
    Posted January 9, 2019 at 1:30 pm

    What an interest opinion piece and factual set of numbers. Dr Hans Rosling (RIP) author of “Factfulness” would love the work done here in compiling the information, facts and figures supporting Bob’s article. I can only wonder what Dr Rosling or maybe his co-authors would make of it all.
    “The Treasurer’s response to the Productivity Commission’s Report on the GST confirmed our worst fears” and would appear to be the nail in the coffin for business as usual for this and any future NT Governments and the minor states whether or not the people elect Labor or Liberal governments.
    The present NT Treasurer or future treasurers will need to improve their lobbying skills, reduce spending and/or improve the economy so the NT and the smaller states have a more sustainable tax base.
    On the increase in growth of the Indigenous population overall: On the figures stated and if immigration remains at its present number, will Australia reach a point in the near future where 51% or more of the population self identify as Indigenous or are born to one parent of Indigenous descent?
    If so, what will be the implications for future budgets? And, will Horizontal Fiscal Equalisation and the Indigeneity factor still be needed?
    I am sure some mathematically gifted person out there will be able to give us an answer and/or prove me wrong.

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  3. Paul Parker
    Posted January 5, 2019 at 4:59 pm

    The primary disadvantage for NT in the past was, is still now, and appears ongoing, has been Commonwealth racist treatment of Australians, particularly in the NT.
    The Commonwealth did not dump racism, instead it dumped measurable needs, promoting instead its use of racial tags for Australians.
    The Commonwealth discriminates between Australians using racial identification as their measure, repeatedly claiming this repugnance most Australians find acceptable, it is not acceptable, indeed IMHO it remains a legal breach of our Australian Constitution.
    The Commonwealth racist methodology does not distinguish between the well-off and others not well off, let alone those who have lifetime experience of deprivation.
    The Commonwealth argues lawfulness to deny Australian families their otherwise held right to live together based on its racial testing of Australians.
    The Commonwealth promotes racial identification of Australians, to qualify our legal rights, our legal responsiblities, our equality, as Australians.
    Commonwealth promotes denial of assistance to Australians who clearly satisfy acknowledged levels of “need”, denies assistance to Australians who clearly demonstrate ongoing deprivation, for the Commonwealth defines the difference using the Commonwealth’s racial test.
    Commonwealth racist methodology provides funds to individuals who do not need them using wealth tests, provides funds to individuals or groups who fail measurable standards of need tests for such assistance.
    Commonwealth dumps measurable needs, promoting use of racial tags.
    It is not a race thing for me, it is both a “rights” and a “needs” thing.

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  4. Posted January 4, 2019 at 3:18 pm

    While we navel-gaze at our own dire financial situation in the NT, a report just posted on the ABC News site states: “Since its recent peak in late-August, the local market has plummeted by about 12% — as investors grow increasingly concerned about an unresolved trade war, slowing global economic growth and the United States raising interest rates too quickly.
    “Sentiment is as bad as I’ve seen it for a long, long time … the negativity is absolutely rife,” Chris Weston, head of research at Pepperstone, said.
    “Ultimately, the market is concerned if we do see a resolution between those two nations [the US and China] … the damage has actually been done to the global economy and we’re hurtling towards a recession.
    “Equities is a confidence game, and if it goes down in China, Japan, Europe and the US, we are going down as well — there’s no doubt about that situation.”
    That “we are going down as well” is us – Australia as a whole.
    If recession is now on the cards, I think we can forget about assistance for the NT. The money is just not going to be there.
    In my article “The forgotten lesson” I stated near the conclusion “currently both national and world circumstances appear decidedly tentative at best. We’re likely to find ourselves overtaken by events well outside of our control.”
    At present it appears those events are now starting to overtake us.

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  5. Richard Lim
    Posted January 4, 2019 at 1:20 pm

    It appears to me that NT bureaucracy is either moribund or is no longer fearless and forthright with NT Ministers.
    Bob Beadman was also my CEO for a short while, and I was privileged to work with him. He makes so much commonsense.
    Surely NT Ministers and Federal Members of Parliament can’t be that politically deaf that they don’t hear commonsense.
    Horizontal fiscal equalisation is a parameter that is absolutely essential when it comes to the funding of the NT.
    Not only was the infrastructure deficit left by the Commonwealth at Self-Government huge and insurmountable, the current provision of services into remote NT is simply impossible with the lack of funding.
    I do sympathise with the NT Government having to seek extra funding, but that was always going to fall on deaf ears when NT Government expenditure since the Martin Government (that was when the GST came in – and the phrase “rivers of gold” came into use) has been poorly managed.
    However, no matter how much resources are to be put into remote NT, how much is enough?
    How do you provide services to small numbers (and therefore no economies of scale) to live in places where there is no gainful employment?
    How many of us would like to have all the mod cons that money can buy, with all the security in the world to be safe, to have a secure roof over our heads, to have food and water aplenty, to wake up each morning, while living in the middle of the desert, and to ask ourselves: “What is today going to bring?
    “What am I going to do to while away the next 16 hours before I go to bed tonight?
    “What is there for my children to do after they finish school, be it at Year 6, 9, 10 or 12?
    “Will my children be better off going into the cities to live and flourish or to stay here with me … to do what?
    “What is keeping me here?
    “What is today going to bring?”

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  6. Bill
    Posted January 3, 2019 at 3:12 pm

    As a non Territorian with an interest in the Territory (I lived and worked there in the late 80s), I find this article and the informed comments of great interest.
    I would love to come back to the Territory, I really enjoyed my time there.
    It’s a special place as any Territorian would know.
    However, a quick google search of “NT + News” brings up mainly negative results which is really sad.
    It’s downright offputting that the Territory administration is pretty much broke. I don’t have any answers, I’m just saying that it’s a bad look from the outside.

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  7. Ralph
    Posted January 3, 2019 at 11:49 am

    James, I suspect that remote community infrastructure does add to the NT’s revenue stream, as it always has. Case in point (admittedly dated):
    Federal grant of $500,000 for remote preschool.
    NT admin tax $250,000.
    Old asbestos clad science block sent to the community (instead of dumping it}.
    Over the next three months, Alice Springs tradies renovate the building.
    There is no money left for painting so that becomes a school expense.
    Darwin designed building has no security so is broken into and trashed, then closed for six months as the school tries to get it repaired.
    So the NT Government gets a windfall profit, Alice Springs businesses do well and the community gets a high maintenance asbestos building.

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  8. NW
    Posted January 3, 2019 at 9:59 am

    Bob was one of the best CEOs I ever had.
    Fair, firm and called it as he saw it.
    No bullshit – just played it straight down the line.
    Good to see his insights, analysis and opinions are still valued.
    The whole “disadvantaged by birth” mantra needs an overhaul – too many urban mixed race mob skimming off the top which means less for those genuinely in need.
    Pity the current mob of senior bureaucrats and politicians lack the talent, experience and knowledge to make a genuine (positive) difference.

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  9. Ken Clarke
    Posted January 3, 2019 at 8:50 am

    Bob has a number of good points but he is far too kind to the Productivity Commission.
    That organisation should hang its head in shame at how it has mislead the Australian community. The Productivity Commission constantly bagged the fiscal equalisation process on two key grounds: First, it said right from the start that jurisdictions were equalised to the highest standard, i.e. WA. That is simply not true and only applies in a mathematical sense when deriving the relativity number BUT that is after the actual equalisation process has been completed, where all jurisdictions receive around about the same capacity to fund Government services.
    But by making this tricky claim, it encouraged the Australian community to think there was something horribly wrong with the fiscal equalisation process when it is actually very fair and sensible.
    Second, the Productivity Commission made a lot of noise about how the fiscal equalisation process distorted Government decision making and was therefore bad for the economy.
    But in its final report it produced no evidence of this despite close on two years of investigation.
    The final report uses words like “might,” “could” and “may” to describe the “damaging” effects of fiscal equalisation on the economy.
    This Productivity Commission promoted policy debacle means that for the first time in Australia’s history, access to Government services will now depend on what jurisdiction someone lives in.
    It means residents of Brisbane for example will have lower standards of Government services than residents of Perth.
    That can’t be good for Australia.

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  10. James T Smerk
    Posted January 2, 2019 at 1:09 pm

    Great article.

    The Feds need to distribute more GST to the Territory so that they can provide for remote communities as there is a huge expense there and unfortunately I suspect most of these remote communities that the NT supply services and infrastructure to do not add to the NT’s revenue stream, which is a shame as there is rich culture there which is being overshadowed by the negative aspects and the NTG and the Elders seem fine with that, just look at the prison stats about.

    There indeed does need to be a new system of determining how best to help the Indigenous peoples and it needs to be means tested. I know of a person who claims this anywhere they can, with their blue eyes, blond hair, very fair skin and very wealthy family and they don’t even remotely associate with any Aboriginal cultural aspects, but it’s still there so they cash in where they can. While the poor disadvantaged person living harsh has to compete against them for benefits and special requirements in jobs.

    The aspect of other states miraculously increasing their numbers in the last Census just goes to show it’s not working.

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  11. Richard Bentley
    Posted January 2, 2019 at 12:55 pm

    Thankyou Editor for providing space for this valuable report. It deserves to be widely read.

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  12. Steve Brown
    Posted January 2, 2019 at 12:51 pm

    The problem for the Territory began with a disproportionate level of GST funding which in turn allowed the creation of a vastly over inflated public bureaucracy mostly based in Darwin and whose members “expect gold plated services” to a level “superior” to that of most other Capitals!
    Funding those over inflated services is achieved by parasiting funds intended to provide basic services to the further reaches of the Territory.
    The problem is the parasite has become such a burden it’s killing off the host, our bureaucracy so large and directionless it’s suffocating the life out of the last vestiges of free enterprise while providing less and less on ground service to anywhere bar the Capital.
    Which now under a reduced GST regime is beginning to get a taste of its own medicine, so God help the rest of us!
    Is any NT Government better than Canberra ? Once I would have unhesitatingly replied “yes” to that question… Now? If we can’t put together a stringent well managed government with an overall Territory view, a goal to build the economy, freeing up private enterprise,massively reducing Government bureaucracy, repaying debt through building a larger economy! Redirecting GST funding to fulfil the original intention! Building infrastructure that facilitates long term growth and employment! If we can’t achieve this outcome within the next electoral cycle, I believe anything including Canberra would be better for the future of long term committed Territorians!
    I think you’ll find Canberra will be thinking along similar lines.

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  13. David Coles
    Posted January 2, 2019 at 12:17 pm

    Great analysis of one of the most serious and cynical policy proposals of recent years. Destroying a distribution model that has worked to the benefit of the country for decades so the Coalition Government has some chance of winning some WA seats is simply wrong.

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  14. Hal Duell
    Posted January 2, 2019 at 11:56 am

    So it sounds to me that the problem is how to provide first-world mostly urban services to third-world mostly remote communities with an eye to budget restraints based on population numbers.
    Bearing in mind that many of those remote communities are very remote, and I suspect it cannot be done.
    Are the urban populations and the governments responsible for them going to forgo funds in favour of spreading the good oil way outback? No, they are not.

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  15. Rolf Gerritsen
    Posted January 2, 2019 at 10:35 am

    Bob is right on the money here.

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  16. Psuedo Guru
    Posted January 2, 2019 at 10:13 am

    A realistic expose of fact: Public servant numbers and Indigenous payments must be massively reduced to reign in debt.

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