Off-budget spending obscures true cost of government

Government overreach

The federal and state governments' plan to spend over $110 billion off-budget over the next four years reflects an increasingly common phenomena of governments wanting to intervene across the economy using all available means. Much of it is activist industrial policy, wanting to reshape the economy. Some of it is blatant vote buying, such as the recently announced 20% HELP debt write-off.

Impact on budget transparency

Partly, off-budget measures reflect a desire to obscure the budget impact of government activities. Off-budget measures can obscure the true financial position of the government, reducing transparency and accountability, especially as information is often shielded under claims of commercial-in-confidence.

Risks to balance sheets

These activities can increase risks to government finances due to the potential for underperforming investments, writeoffs, or bad debts. The Federal government already writes off around one dollar in every six lent out as HELP. Furthermore, off-budget activities create long-term fiscal risks through contingent liabilities that are not fully appreciated by governments.

Economic consequences

Off-budget spending contributes to higher debt and interest payments, potentially leading to higher taxes, which can reduce productivity and living standards. It also may exacerbate inflation.

High opportunity costs

Government financing vehicles like the Clean Energy Finance Corporation (CEFC) and National Reconstruction Fund Corporation (NRFC) are increasingly used to meet policy goals (e.g. climate policy and industrial policy) but can lead to inefficient use of resources and underperforming investments.

Concerns about legitimacy

Many off-budget activities lack a clear market failure justification. Activist industrial policy measures undertaken off-budget risk picking losers rather than winners.

Recommendations

Include better reporting and transparency of off-budget activities, quantification of fiscal risks, and more rigorous oversight of government investments and their economic implications.

Gene Tunny is an Adjunct Fellow at the Centre for Independent Studies, a former Federal Treasury officer and the founder of Adept Economics.

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