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Financial responsibility on council

Council’s job is to protect our family, our public services, our environment, our jobs and our wallet. Being a councillor is a huge responsibility. They need to be good with people and with finances. They need to have a long-term vision.

Today, I'd like to take some time to talk about the wallet side of things. While financial discussions can sometimes be dry, it is a crucial element of good governance. My experience on the ABC Advisory Council and the boards of Tasmanian Youth Broadcasters Inc, Glenorchy Community Fund Inc. and Gymnastics Tasmania have taught me as much.

I have been invited to speak at a public forum hosted by the Kingborough Ratepayers Association Inc on Friday 5th October, to be held at 6pm at the Kingston Beach Community Hall. In the lead up to this event, I was provided with a candidate survey which asked me to represent my views on the four key requests of the Ratepayers Association. These are:

1. Rates capped at CPI

2. Balanced budgets

3. Good corporate governance

4. Procedural transparency

On the face of it, one might think that these all sound like good things, and indeed, to some extent they are. But, as I hope you will agree, life is not quite so binary: black & white, right & wrong, good & bad. Some things, like managing a multi-million-dollar organisation, require more nuance. Read on, to find out more about this nuance!

Let's work backwards through the four points. Procedural fairness and good corporate governance are fine motherhood statements and I wholeheartedly support the pursuit of such notions. Indeed, as a board member of a corporate entity or as a councillor, it is one's legal duty to maintain standards of good corporate governance and procedural transparency to one degree or another.

Good governance and procedural transparency is absolutely critical. I was announced as one of the Tasmanian Community Fund’s first batch of 2017 Emerging Community Leaders (where we were taught a similar curriculum to the Australian Institute of Company Directors), so I have been privileged to learn best practice tactics for good governance and procedural transparency. During my time on the ABC Advisory Council, I was required to demonstrate these skills when confronted with complex issues that affected a wide range of stakeholders. I had to navigate this complexity within the context of a billion-dollar organisation that is constantly in the national spotlight.

Now to the idea of balanced budgets. Here's what wikipedia thinks is a balanced budget:

"A balanced budget (particularly that of a government) is a budget in which revenues are equal to expenditures. Thus, neither a budget deficit nor a budget surplus exists (the accounts "balance"). More generally, it is a budget that has no budget deficit, but could possibly have a budget surplus."

Okay, sounds fair doesn't it? Before spending $100, your local council should earn $100 in revenue.

Now let's take your average family home. The median house price in Kingston is $482,000. How many people do you know who earn $482,000 per year? If we all operated with a 'balanced budget', we wouldn't allow ourselves to buy a house until we had earned enough revenue in one year to cover the cost of the expenditure in one year. With large purchases, like a house, it makes sense to amortise the cost over the lifetime of the asset. Houses, sports centres, evacuation centres, sewage treatment works, seawalls, these kinds of things require long-term planning. A council may not be able to fully recoup the cost of large investments in a single financial year. If we were to pass a balanced budget law, as has been suggested in the United States, we would be severely and unnecessarily restricting our capacity to act responsibly on behalf of all residents of Kingborough. I will speak more about balanced budgets at the end of this piece.

I was asked about sustainable fiscal management and what this means to me. Here is my answer:

Yes, sustainable financial management is crucial. I am on the Board of Gymnastics Tasmania (I Chair their facilities committee) and so I am familiar with the idea of dealing with multi-million-dollar projects that have a lifespan of thirty years or more. Just like a multi-sports facility, a council needs to be managed and maintained with a long-term focus. After a flood that damages your roof, there’s no point waiting until next year when there is more money in the kitty to fix the hole. If you wait an entire year with a gaping hole in your roof, you will just make the problem worse. You’ve got to fix the problem right away and then make changes over the long-term to bring the finances back into line. That’s what good financial management means. It is not good financial management to ignore the real problems being faced by people in our community simply in order to allay the fears of people who think that government should be run like a school canteen; so many bananas and muffins out, so many dollars and cents in. A local government has much more fiscal space available to it than the school tuck shop.

In the Ratepayers Association survey, I was asked if I supported "collaborative outcomes to contentious community issues." Here is my answer:

Yes. I think that many Australians are tired of the adversarial style of politics played out on the state and national stage. Local Government should be a space where people from a variety of backgrounds and viewpoints work together in the best interests of the entire community. I will be a councillor for the many, not the few. I will actively listen to everyone’s viewpoint and operate with an open mind and without prejudice. At every stage, I will seek to work together in a positive, proactive way, rather than simply shouting down ideas because they come from someone who holds an opposing view to my own.

Now, the big question: Do I support council rates being capped at CPI? Here is my answer:

My campaign is all about compassion. I think we need more compassion for people like my mother in Allens Rivulet. My mum’s rates keep going up faster than CPI but her pension never does. So, we need more compassion for people like her. We need more compassion for people in Kingborough who are vulnerable, who are struggling, for people who are on low or no income.

Cost of living increases are squeezing the life-blood out of the middle class who are now just struggling to make ends meet. We need to do everything we can to keep rates low. They should always be lower than CPI. But will I sign a pledge to cap rates permanently below CPI? No way.

What if there was a big natural disaster and we had thousands of people on the street, homeless? Imagine in that situation having to tell the people of Kingborough, “Sorry, I wish we could help you find shelter and food, but I’ve signed this silly rule that says we are forbidden under any circumstances from raising the rates of landowners above a certain level.”

That, to me , would be madness. I will always take a people-first approach and believe that good government is government for the many, not the few. I have an understanding of Functional Finance (initially developed by Abba Lerner) and I note that a lack of fiscal flexibility has condemned members of the Eurozone (particularly Greece) to near-permanent austerity. The horrendous social outcomes experienced by European and American citizens due to the mindless pursuit of austerity has caused untold hardship. One example is that the Maastricht Treaty forced European nations inexplicably to maintain deficit-to-GDP ratios of less than 3% meaning that they had no room to move if an economic crisis came to pass. Now, unemployment, homelessness and suicide has increased because of the cruel and irrational policies that prioritise numbers on a spreadsheet over the lives and human dignity of citizens.

Just think about it: when a financial crisis happens, a government's revenues go down at the same time as their expenditure goes up. Picture this scenario: Next week, Wall Street has a crash (yet again) or the US Federal Reserve raises interest rates (yet again) and this has flow-on affects on local house prices. Kingborough Council's rates revenue will go down because fewer people are able to own their own homes and be rate-payers. Simultaneously, as rates revenue goes down, the council will be spending more because people will be needing help from the social services that the council provides to people in need. The more people in need, the higher the costs. At the federal government level this is even more stark because as people lose their jobs, they pay less tax. Simultaneously, they join unemployment cues and receive welfare payments.

So, governments have a choice. They can either operate counter-cyclically and so spend more to help people get back on their feet, even if this means going into deficit. Or, they can work pro-cyclically, and ramp up austerity policies. This is what is happening right now in Greece. Government revenue is down and government expenditure is up. The Eurozone could help fix the crisis by investing lots of money hiring lots of people in Greece. When they have jobs again, they will have more money to spend, which will help the local businesses get back on their feet, and it will create a virtuous cycle. Instead, the Eurozone is working pro-cyclically. So, because they have less revenue, the government is spending less on social services, not hiring anybody, firing the few that still work for government and as a result everyone is getting poorer and poorer and the standard of living in Greece is dropping significantly. They have lost 25% of GDP and they anticipate that austerity will continue until 2060. As the government-imposed fiscal cruelty continues, rates of homelessness, joblessness, emigration and suicide all increase. This is a vicious cycle. We need to be careful that we don't elect people who, because of their lack of understanding of macroeconomics, think they are doing the right thing by "balancing the budget" and "cutting the spending" but instead, end up wrecking the whole place and plunging the local residents into poverty and deprivation.

My final thought on balanced budgets:

Who created this idea of having to balance budgets in a single year anyway? A year is simply the time it takes the earth to make one revolution around the sun. Why oh why is a solar year the single factor that behaves as arbiter for the expenses of a local council? If we don't balance the budget in a single solar year, will Kingborough sink into the earth? Will the sun-god get angry? Will banks refuse to lend money ever again? I'll point out at this stage that the Australian Federal Government ran a 38 year consecutive deficit between the years 1950-1988. Small businesses and individuals can't really do that because the lenders of money are worried that the business will fold or the individual will die over the span of many decades. However, lenders are less concerned about the viability of lending to governments, because they rarely fold or default on their debts.

A chart showing federal government deficits between 1901-2014
Governments can take a long-term view. Much longer than a household or small business.

I hope you can see by now that good fiscal management is about a lot more than balancing the books. What's the point of having a pretty-looking spreadsheet where all the numbers match up at the end of the year, if you look outside and there is garbage on the pavements, homeless people on the streets, elderly people choosing between turning on the heating or buying food? My point is, what's the point of having a nice budget balance if you have a junky economy? The whole reason we invented credit was to be able to make big investments now that will pay off in the future.

If we keep electing short-term, narrow-minded people to council who think that compassion should be an afterthought, then will continue to experience the ongoing slipping of Australian living standards and the ongoing diminution of the middle class.

We need bold thinkers. We need people with courage. We need people who understand what financial management is about; taking a long-term view, not micro-managing the pennies and cents while people outside the building are struggling to survive. We need people who know that the government is not like a school tuck shop. Government is not like your average household. Government has to take care of all people in the community, not just the wealthy few.


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