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Sep 12, 2012

Quiggin: Qld's no-ideas budget will hurt where it counts

Queensland Treasurer Tim Nicholls' first budget is a startling exercise in self-contradiction. Health services will be the worst hit, writes John Quiggin

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Queensland Treasurer Tim Nicholls’ first budget is a startling exercise in self-contradiction. In all but one respect, it looks like the typical budget of a government that doesn’t have too many ideas, but pays a lot of attention to focus groups and industry lobbies.

Members of the huge LNP backbench are busy sending out messages to their electorates crowing about all the goodies they’ve managed to extract from the government’s barrel of pork. Many of these goodies were the typical bribes issued in advance of an election, including:

  • An $80 handout to all households, with no targeting, nominally to offset water bills
  • A previously announced freeze on electricity prices for households, paid for out of general revenue
  • Handouts to tourism, racing and other sectors.

With one exception, the government can reasonably claim to be keeping its “core” promises. But the one exception is huge: the sacking of 14,000 public servants, most of them in service areas such as health, justified by an alleged fiscal emergency.

Before the March election, fully aware of the level of public debt (and, for that matter, assets) the LNP promised public servants their jobs were safe. After the election, they claimed this assurance was directed only at those in “front-line jobs”. Then, when they announced the sacking of large numbers of nurses, they said the “front-line jobs are safe” really meant “front-line services won’t be affected by job cuts” (a nonsense claim, but hard to disprove immediately).

The mass sackings were justified by the standard device used by newly elected conservative governments to dump inconvenient election promises, a commission of audit. This one was headed by Peter Costello, whose 1996 commission of audit paved the way for those that followed, not to mention the discovery that election promises needed to be classified, after the voters have been counted, as “core” and “non-core”.

Costello couldn’t find any actual holes in the previous government’s accounts, so they simply highlighted the most alarming measure of public debt (gross public debt for the entire public sector, ignoring financial and physical assets) and painted a picture of disaster that was amplified by Campbell Newman’s suggestion that Queensland was on the verge of becoming another Italy and Spain.

While the report’s treatment of debt was absurdly alarmist, it did at least make the point that Queensland financial difficulties were due, in substantial measure, to the erosion of the state’s most efficient revenue sources, land tax and payroll tax, through concessional rates and high thresholds.

Apart from the mass sackings, the budget barely addressed any of the state’s problems and showed little in the way of of fiscal discipline. There were increases in gambling tax (the most regressive and socially costly tax in the government’s armory) and in mining royalties (the aim being to bite into the take of the federal government’s mining tax). But the big issues have not been addressed.

The timidity of the budget (except when it comes to sacking people) is illustrated by the treatment of the $7000 first home buyers grant, a policy universally agreed to be unjustified and counterproductive. The budget scrapped the grant, but replaced it with an even bigger one, restricted to the purchase of newly built houses. This policy is even more blatantly distortionary than the old one.

So the government is relying almost entirely on cuts to the public service, focused on the health sector. This is a high-risk strategy to put it mildly.

It may well be that the health bureaucracy is bloated and inefficient, but that doesn’t mean creating a new layer of regional management is going to improve things, especially when their first task is to implement arbitrary cuts in the number of nurses and other employees. Promises that front-line services won’t be affected by job cuts is just wishful thinking. There hasn’t been any analysis of how to improve efficiency, just an edict that numbers need to be cut.

In these circumstances, it’s virtually inevitable that waiting lists will blow out. And inevitably, when you have long waiting lists, people will die waiting. At that point, the question will be whether the government can hold its nerve and admit that it was lying about the front-line services, or whether we’ll see expensive panic measures to fix the problem.

Overall, the budget manages to combine the worst of all worlds: panic cuts in crucial areas of public services hand in hand with pork barrelling and vote buying that are outrageous even by the depressingly low standard of Australian state politics. All justified by the tired and discredited theatre of commissions of audit, black holes and the rest.

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18 thoughts on “Quiggin: Qld’s no-ideas budget will hurt where it counts

  1. Steve777

    The idea of cutting ‘wasteful’ government spending appeals to many ‘right minded’ (i.e. right-wing-minded’) voters. I think that they imagine that somehow politicians and others they disapprove of (typically including ‘bureaucrats’, the unemployed, boat people, ABC lefties, latte drinkers, people who ban school Christmas plays to avoid offending Atheists / Muslims/whatever) suffer, but nice ‘respectable’ people like themselves don’t. But what we are seeing in Qld and now NSW is what cutting government spending looks like. There may have been some scope to trim excess administration. There may have been a few programs of marginal usefulness that could be cut back. But not a great deal. State governments do stuff that even ‘respectable’ people need – education, law and order, hospitals and other health services, roads, public transport and so on. Everyone thinks that the government should be doing more in these areas, even if they don’t want to pay for it. But major cuts means cutting into these services. Of course many thinkers on the right will make a case that governments should be doing less of all of these, but those who want to run for elected office won’t say that to the punters.

    Any politician loudly banging on about ‘excessive’ spending or alleged ‘black holes’ should be challenged on exactly what they are going to cut and which taxes or charges they are going to increase. They should not be allowed to get away with populist answers relating to marginal programs or cutting ‘waste’. Whereabouts in health, law and order, education, transport, or (Federally) pensions or defence are they going to cut? How many will they sack? What popular handouts will they cut out or wind back?

    We should regard what is happening in Qld and NSW as a preview of what an Abbott government will do.

  2. Anna Gillbard

    Campbell Newman’s comparison between Queensland’s economic situation and that of Spain is ridiculous. Queensland’s debt to revenue ratio shows that we are in a much better position than Spain. Furthermore, Queensland’s unemployment rate has been relatively stable (between 5% and 6%) for the past three years, whereas at the end of the second quarter of 2012, Spain had an unemployment rate of 24.6%.
    With regards to the budget, the Newman Government’s policy of directly cutting jobs through large-scale redundancies and indirectly by reducing or discontinuing funding to non-government organisations does not have a sound economic justification. The job cuts, reductions in expenditure and the focus on improving Queensland’s credit rating seem to be consistent with the out-dated and discredited ‘treasury view’. The cut in the budget deficit is supposed to promote confidence from business. Many economists have credited post GFC austerity measures as contributing to the length and depth of the recessions in the US and Europe, which suggests that the Queensland Government’s economic policy may be detrimental.
    A far better option would be to increase taxes in line with other states. The budget does contain some increases in levies and taxes; however, apart from the increase in coal royalties, the increases are modest and for the most part target people across all income levels. Although an increase in taxes might be unpopular, tax increases targeting the wealthy would be beneficial as the trickle down hypothesis has been shown to not be effective. In 2010 the average net worth of the top 20% of Australians increased, and yet Queensland is so economically bereft that services need to be cut and jobs slashed.
    People who are set to lose their jobs probably would have preferred that the government forgo the measures to reduce the cost of living if it meant more jobs could be saved. For the most part these measures will preferentially favour high income earners anyway. High-income earners are likely to have higher energy bills and more motor vehicles, meaning that they stand to benefit more from these measures.
    Campbell Newman needs to take a long, hard look at his current economic policies and look towards the long-term future of Queensland rather than applying a quick-fix solution. Perhaps the benefit of a quick-fix solution is that bringing the budget back into surplus on the proposed time-frame, might bode well for the government at the next election, and ameliorate the negative perceptions that currently surround their governance.

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