The forgotten lesson: Take tough decisions now or borrow against tomorrow into unmanageable debt

25110 Alex Nelson by-lineThe Northern Territory’s economy is staggering and its immediate future prospects look bleak. The public service is bloated and the NT Government is spending beyond its means.

 

A major natural gas project has been completed but there are no new development projects to take up the slack as work opportunities dry up.

 

The tourism industry is struggling, empty shop fronts litter the CBDs of the major towns, and crime and juvenile delinquency is rampant across the Territory.

 

Commonwealth receipts are down and the Federal Government, politically opposite to the Territory Government, is unhelpful. Moreover, there are numerous signs indicating the national economy isn’t looking all that bright, too.

 

25110 Perron story draft OKThe NT Government, led by a Chief Minister who is the Member for Fannie Bay, admits that times are tough … except I’m not referring to the parlous circumstances of the current regime of Labor leader Michael Gunner but rather the situation that applied in 1990-91, almost three decades ago, when the NT Government was led by CLP Chief Minister Marshall Perron (at right).

 

The Gunner Government’s budget woes are almost incomparably worse than anything experienced before, yet there are some similarities with the situation that existed 28 years ago.

 

After several years of predominantly hostile relations between the Northern Territory Government and the Hawke Labor Government in Canberra, the CLP’s political fortunes had become increasingly thorny.

 

The Federal finance minister, Senator Peter Walsh, had a particularly dim view of Canberra’s largesse towards the Northern Territory; and from 1984 onwards had overseen a progressive tightening of the financial screws.

 

As the big development projects generously financed by the Memorandum of Understanding at the start of self-government were completed, the NT Government came under increasing financial stress.

 

The last of these projects was the construction of the gas pipeline from the Amadeus Basin to Darwin, completed by early 1987, with the new Channel Island gas turbines commissioned from late 1988 (shades of the Inpex project today).

 

The Federal Labor Government’s financial constriction of the NT drew blood – it was a major factor behind the political instability and turmoil that bedeviled the CLP during the latter half of the 1980s, not least including the sudden coup that ousted CM Steve Hatton and his replacement by Marshall Perron in mid-July 1988.

 

In two subsequent by-elections for previously safe seats – Flynn, September 1988, and Wanguri, August 1989 – the CLP was thrashed with swings against it of 21% and 16% respectively.

 

By early 1990 the CLP’s own polling indicated it was set to lose office for the first time; so this is the background when, on June 8 that year, Marshall Perron dispatched a letter to all households admitting the NT Government was experiencing financial difficulty.

 

Perron’s letter pointed out there were “some 15,000” public servants in the NT administering a budget of “some $1.8 billion annually” but that “the costs of adequately servicing [the NT] are greater than the dollars available to us.”

 

The letter provided a graph illustrating Commonwealth grants funding to the Territory for six years was down by 26%, which was twice the rate of the six states.

 

Furthermore, Perron stated, “warning bells from the national capital indicate that the new financial year is going to be even tighter.

 

“Acting on these signals you may be aware that I recently instructed Ministers to implement a program of cost containment. This includes no new commitments for equipment, leasing or rental plus commitment to an absolute minimum of overtime, higher duties allowance, advertising and travel.

 

“In terms of our total budget, the savings will represent a small percentage, but this action will save jobs and programmes in the future.”

 

Perron’s letter was sent out – as it eventuated – only five months before the NT elections of October 1990.

 

The CLP won the campaign. It’s now long forgotten but that election result was one of the most incredible turnarounds in Australian political history.

 

Having overcome that hurdle, the CLP Government commenced the process of repairing the Territory’s budget.

 

Newly appointed Treasurer Barry Coulter swiftly dispatched memos to his ministerial colleagues “demanding restraint in expenditure growth so the NT could continue to live within its means. His proposal was two-pronged – restrict expenditure to bare essentials and half recruitment” (Centralian Advocate, November 21, 1990).

 

Rumours abounded of significant cuts to the NT Public Service: “Chief Minister Marshall Perron has assured Territory public servants that no jobs will be jeopardised following the Territory Government’s expenditure review process later this year.

 

“Mr Perron said the review process was simply ‘containing ambitions of growth that there might be in some departments.’

 

25110 Perron story draft 1 OK“He strongly denied the NT Government intended to cut up to 1000 Public Service jobs. He also said the Government did not have any specific target for cuts to positions within the Public Service.

 

“We will be looking at all of them to encourage them to be more effective” (Advocate, November 21, 1990).

 

By late December the Expenditure Review Committee, comprised of Marshall Perron and Barry Coulter, was in place and commenced a forensic examination of the NT Government’s entire expenditure of its departments and authorities.

 

A hint of what lay ahead was provided by another public letter from Marshall Perron on April 3, 1991: “Dear Territory Taxpayer, we live in tough times.

 

“The Commonwealth has cut funds to the Territory by 26% over six years as Australia was pushed into the recession which Treasurer Keating said ‘we had to have’. Governments which failed to manage their finances properly have virtually bankrupted the States of Victoria, Western Australia, South Australia and Tasmania.

 

“I am determined that will never happen here.

 

“In a few weeks changes will be announced that will ensure we can continue to manage our finances responsibly over the coming years. These changes will mean some cutbacks in services, some reductions in public service positions and some closures.

 

“Some will take effect immediately, others will be phased in over two years. No-one will be sacked. In a number of areas government services will be combined for greater efficiency.

 

“There will be some pain. There is no avoiding it. Either we take the tough decisions now or we borrow against tomorrow, pushing the Territory into unmanageable debt.

 

“No-one welcomes cutbacks, but I want you to be aware of my firm commitments in this process.

 

• The changes we make will be spread fairly across the community.

 

• They will be no more than is absolutely necessary for responsible financial management [original emphasis].

 

“With those assurances in mind I feel certain that together we can make the changes and come through this process leaner and better prepared for the difficult times ahead.”

 

On April 23, 1991, Perron released his report of the Northern Territory Government Estimates Review. The scale of announced public service staff reductions, amalgamations, contracting out and closure of facilities, and of increased fees and charges for services was a deep shock to the Territory: “It has been the most comprehensive audit of the Territory’s public sector ever, leading to the most significant changes since self-government.”

 

Top of the long list of changes in the public’s eye was the reduction of 1223 positions in the NT bureaucracy, although a quarter of the identified positions to be cut were already vacant. Identified savings amounted to $108m and increased revenue of $18m over two years.

 

The announced closure of seven schools and increased class sizes led to a fierce community backlash against rookie Education minister, Shane Stone. There were also closures of dental and health clinics.

 

A number of research projects, especially in primary industry, were cancelled.

 

Even a public holiday – the Additional Day holiday during Christmas-New Year, unique to the NT – was abolished.

 

Initial shock soon gave way to outrage. Unsurprisingly, there was fierce condemnation of the NT Government from the Labor Opposition and various worker representation bodies. Indisputably, had all these measures been known or suspected prior to the NT election campaign of October 1990, the CLP would likely have lost.

 

Many of the changes that occurred continue to this day; for example, control of the new Strehlow Research Centre was transferred to the Museum and Art Gallery NT; the Conservation Commission (now Parks and Wildlife) library at the Tom Hare Building was combined with the AZRI Library (still existing, thanks to recent DPIR Minister, Ken Vowles); and the closure of the Department of Transport and Works workshop led to the donation and relocation of that structure to the Old Ghan site south of town to begin housing the National Road Transport Hall of Fame.

 

Some decisions were altered or reversed.

 

The highly controversial closure of Traeger Park Primary School was assuaged somewhat by transferring it to the Catholic Church to become a part of the extended OLSH school network in Alice Springs. The transfer of Yirara College to the Finke River Mission of the Lutheran Church was also enacted.

 

The NT Government announced the closure of the Spencer and Gillen Museum in the Ford (now Alice) Plaza on account of its low visitor numbers. Opened in March 1988, the museum had a 10 year lease on the space it occupied on the Plaza’s upper level, and it was perhaps because of this arrangement that it continued to survive there until its relocation to the Strehlow Research Centre in 1999 where it became the Museum of Central Australia.

 

(History now seems to be repeating, as the new Megafauna Central Museum directly opposite Alice Plaza also suffers from a lack of visitors at precisely the time when the NT Government can least afford it).

 

From an historical standpoint, the political consequences of Marshall Perron’s ERC cutbacks are its most striking feature – in short, there weren’t any.

 

Despite all the outrage in 1991, it was ancient history by the time of the next NT election campaign of May/June, 1994. Perron went on to lead the CLP to an even greater victory, comfortably securing 17 seats for the government; and a year later he retired from office at the height of his power, the only Chief Minister ever to do so, leaving the CLP in a still renewed ascendancy towards overwhelming political dominance by the end of the decade.

 

So what marks out Chief Minister Marshall Perron’s success in tackling the financial difficulties that threatened the CLP’s tenure in office nearly three decades ago, and how does it compare with his current Labor successor for Fannie Bay, Michael Gunner, whose government faces a looming financial catastrophe today?

 

The CLP had handed down balanced budgets each year. The NT Government’s public debt was offset with a better capacity to repay compared to the other states. The extent of cutbacks and savings required in the early 1990s proved to be manageable well within one term of office, and public outrage had long dissipated by the time of the 1994 election campaign.

 

An important point to note here is that the NT Government (and the states) then had the power to levy a range of taxes and duties to augment Commonwealth grants. A High Court decision (Ha versus NSW) in August 1997 ended this situation; it was this decision which in turn led the Howard Government to introduce the Goods and Services Tax, to compensate the states and territories for the loss of this revenue.

 

During the first decade of this century, revenue from the GST poured into the NT’s coffers.

 

The Martin Labor Government spent accordingly but continued to hand down balanced budgets, confident in the expectation that GST revenue would continue to grow year on year.

 

This approach came unstuck towards the end of the decade – GST allocations fell but the NT Government (by now led by Paul Henderson) failed to compensate accordingly by reducing its expenditure.

 

The problem was masked by the economic activity generated by the enormous Inpex project. This is the origin of the financial black hole that now threatens the Territory – precisely the situation that Marshall Perron explicitly sought to avoid in 1991: “Either we take the tough decisions now or we borrow against tomorrow, pushing the Territory into unmanageable debt.”

 

This triggered a chain reaction that has become progressively worse. The Gunner Government inherited a budget in deficit from the Giles CLP Government, which in turn had found itself handed a poisoned financial chalice from the Henderson Labor Government.

 

Concurrent with this is a massive increase in public service employment, way out of kilter with what the NT economy would justify.

 

There’s no chance of bringing this situation under control within the remainder of the current term of office, and indeed quite likely long into the future.

 

Whichever party next wins office will find itself confronted with the same difficulties leading to constant political instability. It’s effectively a positive feedback loop that threatens to worsen the situation over time.

 

Despite the popular image of CLP politicians as “cowboys” in the early period of self-government, the reality was that they were politically savvy.

 

By 1990 the CLP had been in power by far the longest of any government in Australia yet, despite all the turmoil of the late 1980s, the party demonstrated a tremendous capacity for renewal and re-invigoration. The long experience in office – not least that of Marshall Perron, who was a member of the original Class of ’74 and had the longest ministerial career of any politician in Australia at the time – provided a depth of knowledge and experience that is usually lacking in contemporary administrations.

 

However, there was also a good deal of luck, too. By the late 1980s, the CLP wasn’t alone dealing with political upheaval and financial difficulties.

 

Virtually every state government – most of them Labor – were struggling with significant economic problems and political scandals; and people moving to the Territory from these states were in no mood to support the ALP. For a long time it was a striking feature of Territory politics that normally blue collar Labor supporters from the states switched their votes to the CLP when they came to the Northern Territory; moreover, they had little in common with Labor’s support base in the Territory, too.

 

Virtually none of this applies to the Gunner Government. Its two longest serving members are Gerry McCarthy, Member for Barkly, and Gunner himself, both elected in 2008.

 

Out of 18 members, two-thirds were elected in 2016 (although Scott McConnell and Jeff Collins might now find themselves excluded from that list). When Labor won office in 2016, only McCarthy had previous ministerial experience.

 

Small wonder there is a perceived heavy reliance on ministerial advisers!

 

Strikingly, the longest political experience in the NT Legislative Assembly now lies with the independents – Robyn Lambley (2010), Kezia Purick (2008), Gerry Wood (2001) and Terry Mills (1999). Presumably the latter two are not that far from retirement.

 

The Gunner Government’s over-reliance on advisers is now a widely perceived negative influence on its decision-making; and the abrupt termination of three members from the Labor Caucus has significantly worsened that perception, especially because of Ken Vowles who was widely regarded as the most competent (and honest) minister.

 

Michael Gunner has stated the local economy is going through a tough time at present but is relying on several major new projects eventually coming on stream to lift the Territory out of its financial quagmire.

 

The problem here is that the Territory has a long history of dashing hopes based on big projects, and 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.

 

The electoral prospects of the Gunner Labor Government now look bleak – at best, it may just hold onto office with a severely reduced majority at the next NT elections. Michael Gunner is unlikely to be the Chief Minister by this time.

 

However, if Labor loses office, the new government will be even more inexperienced than the current Labor administration.

 

If the CLP returns to power, only Gary Higgins and Lia Finocchiaro (assuming they win) will be veterans of parliament (both since 2012). If another party, such as 1Territory, were to win office, then all members of the new government will be novices – at precisely the time when the Northern Territory’s economic prospects have never looked so dire.

 

None of this bodes well. It’s high time, I believe, to reconsider how our political system exists and operates in the Northern Territory.

 

 

 

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8 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. Mark
    Posted January 22, 2019 at 10:35 pm

    If the government wants to fix our economy it should take over the Inpex gas plant. By force if necessary!

    View Comment
  2. James T Smerk
    Posted December 28, 2018 at 10:00 am

    The Territory needs some assistance from the wealth of experience in Canberra. Maybe short/long term postings in the NT are in order to offer guidance and training in managing our budget and Government.

    View Comment
  3. Local 1
    Posted December 27, 2018 at 8:29 pm

    I have been here for more that twenty years and always thought I had a decent understanding of NT Politics. This article is so well written I reckon it should be taught in any NT school that does Civics in year 9 or 10. What an in depth review of our Parliment since self government, showing how so many aspects are behind the scenes that we, as normal citizens, could not hope to know. This, combined with the letter to the the editor of today’s NT news by John Elferink, paints a stark picture of the future of the NT.

    Thank you Alex for your analysis, how about a book? a Brief History of the NT?

    View Comment
  4. Dallas Frakking
    Posted December 26, 2018 at 10:47 pm

    Another insightful and educational piece for Alice Springs News readers, Alex. Well done. I’ve always enjoyed your writing.

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  5. Paul Parker
    Posted December 26, 2018 at 5:24 pm

    Can at least one Member of the Legislative Assembley please lodge the Question on Notice for the Chief Minister to name the 700 positions ?

    .

    View Comment
  6. Keith Drew
    Posted December 25, 2018 at 11:04 am

    The members of 1Territory contain some long serving servants of the Territory. Not just public servants. Political ambition to serve to better the Territory is at the forefront.

    View Comment
  7. Edan Baxter
    Posted December 24, 2018 at 2:40 pm

    What an exciting 2019 we have been gifted!
    Merry Christmas #AliceSprings

    View Comment
  8. Matthew Langan
    Posted December 24, 2018 at 12:19 pm

    I saw Gunner bragging the other day about creating 700 new Socialist social service jobs since his massive over spending government took power.
    That’s one hell of a lot of extra money flying out of tax payers’ pockets.

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