*Pic: Image from HERE
In the midst of the tumultuous changes that are happening on Norfolk Island, people have started to ask: Where is the Norfolk Island Regional Council (NIRC) going to get the money it needs to run the island? On this subject there is much that has not been made public by the Administration, but let’s see if we can give some context and add a little clarity.
Back in earlier times, 2004-05, the Norfolk Island Government (NIG) annual report’s record of income and expenditure noted income $24,551,220, expenditure $23,553,196 for a small surplus of $998,024, or after an allowance for depreciation a small deficit of $997,404. No money was borrowed or given by the Australian Government. The consolidated balance sheet showed net assets of $34,529,032 (excluding land). That was pretty much the position that Norfolk Island held over decades of modest living and steady management.
Then there followed the fateful decision by NIG to invest in an airline which proved unprofitable, drained the coffers, and was finally closed in 2012. While this process was going on, the world experienced the Global Financial Crisis of 2007-08, and tourist numbers to Norfolk plummeted. It was in the wake of these events that the NIG first asked the Australian Government for a loan ($3.8m). (One can criticise the airline investment, but it is worth recalling that much grander outfits than the NIG have been brought to their knees by similar moves: consider Air New Zealand’s purchase of Ansett Airways back in 2000 which almost bankrupted Air New Zealand, and which was only restored to success with national government assistance.)
Fast forward to 2014-15. NIG income is $38,307,358 (including revenue from the Commonwealth of $6,644,552 under the Funding Agreement of that year), expenses are $$39,992,619 for a surplus of $3,811,912 – after additional accounting elements are taken into consideration. Net assets are $65,156,845 (here including land). Since 2015 the Australian Government through the transitional Norfolk Island Administration (NIA) has removed many functions from the NIG, including the running of the hospital and social services. Also removed has been the ability of NIG/NIRC to raise money from its traditional sources: notably the NI-GST which raised about $6.5m annually for the government.
So where do we stand now?
An indicative budget for FY 2016-17 – commencing in two weeks’ time – remains unavailable to the public. However from the NIA 2015-16 budget report we might guess expenditures roughly of around $25m for next year, revenues of around $17m and a deficit of around $8m (this excluding the now Federal and State functions). There are two key questions for the future: What are the major financial issues facing the NIRC? And: How will it finance its budget?
The first issue is debt. The NIRC inherits a debt of around $11.2m remaining from an interest-free loan of $12m provided by the Commonwealth to finance the reseal of the airport runway in 2006-07. The NIRC will also need to find funds to complete the next resealing, due in about 2020.
Then there are pressing infrastructure needs. Of perhaps most immediate concern is the need to repair the road network which has been allowed by NIA to descend into the worst state of disrepair in living memory. Major decisions will also be needed on the future of the electricity supply, and the supply of rock and aggregate. And it does need to be acknowledged here that the Commonwealth is contributing substantially to the upgrade of the Cascade jetty and the high-temperature incinerator ($13-14m).
Then there is economy proper. At its heart must be tourism, which has been the source of the island’s livelihood for over 70 years and represents our best core opportunity for the future. Recent calculations for tourist accommodation houses suggest that the introduction of the full panoply of Australian employment laws by 2018-19 will plunge accommodation houses, and with it the tourism industry, into crisis. No figures exist as to how the retail sector on the island is currently performing, but shop closures have already commenced.
In the past, the NIG has provided around $1.3m a year to promote Norfolk tourism overseas, but the Commonwealth has provided no guarantee that it will continue to do the same. If it falls to the accommodation houses to self-fund this marketing, then their outlook will be even bleaker than it is. There is a further problem here too. Even if the economy improves, there is no direct means by which the NIRC can capture the increase for the island (as the NI-GST did), as all taxes payable are payable to Canberra.
There are a number of permitted ways by which councils can raise money (1). Those applicable in Norfolk’s case include: ordinary rates on land and buildings according to their usage; special rates to finance particular works; fees and charges for services provided e.g. sewerage, drainage, building approvals; grants; borrowings; income from business activities; and the sale of assets.
So how will the money be raised? Norfolk Island currently has around 1800 citizens, and there is no way by which it can raise the money required by itself: unless perhaps it returns to the more frugal lifestyles of the past. For Norfolk Island, as for all small isolated islands, the perennial problem is how to finance infrastructure development, and the current transition has changed nothing in this regard. With no income assured to NIRC as of right, it seems to me that Norfolk is in danger of being forced into perpetual dependence on the Canberra begging bowl, while being propped up by social security payments to individuals. On the other hand, a rental payment by the Commonwealth of $8m a year for the facility of a strategically placed aircraft carrier in the western Pacific, together with oversight of Norfolk Island’s EEZ, should be considered a worthwhile investment don’t you think?
(1) See: ‘Chapter 15 How are councils financed?’, in NSW Local Government Act 1993 No 30 , http://www.legislation.nsw.gov.au/#/view/act/1993/30/full
*Dr Chris Nobbs is an economist and social commentator currently resident on Norfolk Island, where he was born.
Other articles, letters on Norfolk Island at: http://www.norfolkonlinenews.com/chris-nobbs.html
This article first appeared in The Norfolk Islander and on Norfolk Online News, 18 June 2016
