Image for Understanding Budgets: A Better Way

The previous posting Stop telling lies Barry ( here ) tried to highlight the lack of understanding of budgetary issues confronting Tasmania, by drawing attention to a particular mainstream media (MSM) contribution. The website linked ( here ) to the posting. The subsequent response, reproduced at the end of this note, certainly confirmed the lack of understanding.

Two issues arising are worth further comment.

First, the current system of a dual fund Public Account is not widely understood. The Public Account consists of the Consolidated Fund and also the Special Deposits and Trust Funds (SDTF).

In most cases the amounts in SDTF a/cs have been appropriated. The SPA a/c was a prominent example of a SDTF a/c.

The Consolidated Fund contains the balance of the Public A/c (PA). Withdrawals from the PA require appropriation unless they are reserved by law amounts (politicians’ salaries, benefit payments for retired RBF members for example).

At any point what had been appropriated far exceeded the amount of cash on hand or likely in the near future. Hence we had a situation where the SPA a/c had a large nominal balance but no cash backing whatsoever.

Even with the abandonment of the SPA a/c there are SDTF a/cs with large nominal balances but with no cash backing, the Risk Management A/c for instance. It is the Government’s aim to try and restore the cash balances as soon as possible, but that will require running cash flow surpluses which is proving difficult.

The Government is in the process of converting the Public Account into a single fund system. Existing SDTF a/cs are being wound down as is evidenced by the budget papers. Appropriations each year will hopefully reconcile with cash outflows and consequently government financial statement may become a little easier to understand.

Hence the first issue is hopefully being addressed.

The second issue is trying to glean information from budget papers which have evolved to such an extent that statements like P&Ls, balance sheets, and cash flow statements, all the usual that dominate annual reports for listed entities, are relegated to the appendices , and when, and more crucially if, readers survive the ordeal, they completely misinterpret the info. They need to be front and central in the budget papers with better explanations.

At present budget papers are not designed to explain. The primary obligation is to provide the mandatory info however confusing it may be to readers.

When one of the State’s most experienced journos finds himself out of his depth in his chosen state of wilful ignorance in a glasshouse throwing stones, when anyone who questions him is labelled as a peddler of uninformed crap, it is confirmation that the presentation of the State’s financial predicament needs to be more accessible.

Cash flow statements present a better basis for trying to understand what is happening. The following from the budget papers sets out the operating cash flows of the Government. (Note: This is a truncated version. The amounts spent on investing in new plant and infrastructure is not included, nor is the cost of servicing borrowings which in any event is negligible):

Read the full article, with extensive graphs, Tasfintalk here

*Pic: Premier Lara Giddings in the 2012-13 Budget lock-up

• Ed: Comment is not available on this item. If you wish to post a comment, comment on the earlier article, here