Jake's View | Excessive caution leaves reserves going to waste

There has been much talk about what the appropriate level of reserves should be. I don't think we need a complicated formula. A common sense rule of thumb says an amount equivalent to 12 months' recurrent expenditure is a prudent minimum, while 24 months would be excessively cautious.

Needless to say, our excessively cautious financial secretary does not agree. One of the reasons he cited in his budget speech for not touching the reserves is that in 2004 they dipped to only 13 months' worth of expenditure. Oh, the horror.

But you can never trust John Whiskers with numbers. He made the comparison against total expenditure, capital as well as operating. For these sorts of exercises, it is generally considered best to look only at operating expenditure, as Mike Rowse did. We are now at about 17 months' worth of expenditure for that annus horribilis in 2004.