Crazy Kevin's End-Of-Year Bonanza

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It’s that time of the year again.

No, I don’t mean tax time (although it is, of course, tax time too). Rather, it’s the time well known to bureaucrats in all manner of government departments: the time when, at the end of the financial year, they must rush to fulfill their quotas, spend all their money and achieve all their Key Performance Indicators.

Economically speaking, the end of June is the most distorted of all months.

The reason is that most government departments still function like Soviet command economies, with quotas to reach and production targets to achieve.

When running an arts festival in Brisbane several years ago, I vividly remember being ushered into the offices of a senior community development bureaucrat and being told the local Council had several thousand dollars "left over in its budget". Money unspent would have to be returned to the Treasury, and probably result in a reduction in that line item for the next financial year. "Could I rustle up a tax invoice quickly?" I was discreetly asked.

The end of June can be bonanza time for community organisations looking to get funding approved for a long-cherished project. "It happens in every financial year in every department," I was told by one source in a Northern Territory-based community arts organisation, who did not wish to be named. "When departments haven’t spent money by the end of financial year they look to push out strategic initiatives or sometimes they look to fund quickly things that have already gone across their desks."

Unlike other times of the year, when government departments might take weeks to raise a purchase order and pay an invoice on 30-day terms, she explained, "at this time of year you can get funds dispensed in two days."

"What’s interesting is there’s a lot more discretion involved at this end of the funding cycle."

The end of June is also the point at which governments often choose to introduce sweeping new changes to particular elements of our tax or finance laws. It can result in not just panicked bureaucrats but even changes in our nation’s birth-rate.

Take the Baby Bonus (technical title: the "Commonwealth maternity payment"), which ramps up by many hundreds of dollars on 1 July this year. I know of at least one expectant mother desperately trying to "hold it in" for the next few days so she can claim the upgraded payment. In their paper "Born on the first of July," economists Andrew Leigh and Joshua Gans ran the numbers on our nation’s maternity wards during mid-2004, and found that as many as 1000 births had been "moved" to ensure the parents received the bonus, "with about one quarter being moved by more than one week."

This kind of discontinuity is rife in government policy, with similarly dramatic effects. We saw it last year with some big changes in superannuation laws. July 1, 2007 was the deadline for the government’s co-contributions to super for low-income earners, and also marked the first date after which over-60s could withdraw their super tax-free. The result was a huge inflow into super funds in the lead-up to the deadline, as many wealthy Australians moved massive sums into their super funds in order to claim a huge one-off tax break.

One of the most dramatic cut-offs in recent economic history was the introduction of the GST. Although Australians had plenty of time (helped along with millions of dollars worth of government advertising – remember those ads starring Joe Cocker’s ‘Unchain My Heart’?) to get used to the idea of the new tax, the one-off distortion of the new tax still had a very dramatic effect on some industries – notably construction, which yo-yo’d precipitously. A huge rush of new building was booked to try and beat the 10 per cent rise in prices on 1 July 2000. But because such a big spike in demand had been brought forward to beat the deadline, builders then spent months sitting idle. The result was a post-GST bust in housing starts.

Of course, 30 June is not the only deadline in government. Perhaps the most important deadline of all is the Friday before an election campaign begins. Under Westminster conventions, this is when governments go into "caretaker mode", which means that no major decisions can be taken or funding approved. The rush is on to get decisions across Minister’s desks and signed off on. We saw this most notoriously in the last days of the Howard Government, with Ministers frantically signing documents to shovel millions of dollars of dubious pork-barelling out the door before the caretaker provisions kicked in.

As the Australian National Audit Office found last year, the process involved in programs such as the Regional Partnerships Program was less than best-practice. To quote the conclusions of the audit report, "there were instances where no application for funding was received prior to funding being approved."

But that’s the nature of deadlines in government. Sometimes the urgency of the moment can trump the demands of process.

Ben Eltham

Ben Eltham is New Matilda's National Affairs Correspondent.

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