Having successfully got into the Victorian budget lock-up this year we managed to get this detailed analysis out to subscribers last Wednesday morning and now have some excellent feedback to create an interesting debate.
On a booming $25 billion budget, the much-hyped payroll and land tax cuts amount to a pathetic $96 million in 2002-03 which equates to only 12.6 per cent of the $759 million in this year’s windfall stamp duty revenues alone.
However, the government looks responsible because the big taxing Carr Government in NSW continues to lift the average of state taxes such that Victoria has now fractionally slipped below the national average for the first time in 10 years.
Unfunded public sector superannuation remains a real bugbear for Crikey. Treasurer John Brumby yesterday claimed he would deliver a $765 million surplus this year but unfunded superannuation liabilities rose by $1 billion to $12.8 billion for the year.
If Victoria was a publicly listed company, they would have to fully fund the superannuation but Bracks is planning to allow it to blow out to $13.6 billion in 2006 and not become fully funded until 2035.
The simple fact remains that Kennett inherited debts and unfunded liabilities of about $50 billion from Labor and got it down to $15 million and Bracks has simply kept net debt at this level.
As the tax revenue has poured in, Bracks and Brumby have spent it with their ears pinned back on services and, belatedly, infrastructure spending.
There are some big ticket items that remain unclear. Surely the government will need more than $550 million for the three planned fast rail projects linking Melbourne with key regional centres.
And there is nothing substantial in the budget for the $200-$300 million redevelopment of Spencer St station or for the Commonwealth Games.
Brumby was out there claiming they haven’t created any new taxes but they sure have increased some or removed concessions. For instance, Labor abolished Kennett’s Winter Energy Concession and also lifted the freeze on water rates last year with a 2.5 per cent increase. And there it is buried in the fine print: water dividends paid to consolidated revenue were budgeted to be $265 million this year but actually came in at $303 million.
And traffic offence revenues are technically called “fees” rather than taxes which enables Bracks to claim the surge in fees from $192 million this year to $320 million next year is all about keeping the road toll down when it is a crude revenue measure.
Finally, the evidence of the TAC hedging blunder was displayed in full as TAC dividends plunged from $190 million to $80 million. This was caused by the estimated $300 million lost by the decision to completely hedge the foreign sharemarket investments such that no benefit was derived from the plunging dollar.
This links to the final point about how governments are susceptible to the vicissitudes of the market. Each one per cent fall in Australian and international stock markets wipes $50 million off the Victorian budget bottom line.
The cost of superannuation blew out this year because the long term investment return of 7 per cent will probably finish at 1 per cent. Next year’s forecast goes back to the 7 per cent figure but if markets deliver a repeat of the 1 per cent figure, that would wipe out $300 million of the projected $522 million surplus.
REACTION A FORMER TREASURY BOFFIN SPEAKS OUT
Couple of quick points for you:
First, ‘Unfunded Super’. I wouldn’t be too concerned about this item. The unfunded schemes were closed off to new members early in the Kennett regime, and substantial numbers have since been paid out. What remains is the actuarial estimate of payouts & pensions to be paid over the next 30 to 40 years (incl payments to me). Not something that can fall due at once. The only cost drivers are the periodic indexation of the pension payments and the link of final entitlements to to average salary of final years. Until pensioners start to die in droves, the total liability will continue to rise for that reason. (See graph on p104 of Budget Paper 2.) The important consideration is whether the annual cost to the Budget of pension payments can continue to be met. You can make up your own mind on that.
If you want a real ‘frisson’, check out the C’wealth Govt’s unfunded liabilities for:
a. employees’ super
b. old age pensions (shudder).
Personally, I believe these amounts should be regarded as contingent liabilities, and not brought on to the balance sheet at all.
Second, ‘Spencer Street Railway Station’. No surprise there is no figure for this in the Budget. At p87, and also p98, of BP2, this is designated as a ‘Partnerships Victoria’ project. Ie, it will be built with private capital. (A Kennett era concept, you will recall. Although, something like it was tried in the last gasp days of Kirner, to build police stations and court houses.)
I liked the rest of your piece.
Cheers, Name Withheld
CHANTICLEER FALLS FOR LABOR SPIN
There is nothing like a well-oiled Labor spin machine in full flight and we’ve had it in Victoria over the past few weeks. Firstly, to get maximum exposure for some tiny tax cuts, the government announced these in a separate business statement two weeks back. This is what we sent to subscribers at the time about an incredibly soft piece from the Fin Review’s Chanticleer columnist John Durie:
“Crikey was amazed to see the puff piece that John Durie ran about the Victorian economy and the Bracks government in the Fin Review’s prestigious backpage Chanticleer column on Tuesday.
The Australian’s Alan Wood was on the money with his piece under the headline “Bulldust raised in splitting the Budget”. He attacked the “loopy” laws proposed with the introduction of criminal sanctions in the event of industrial manslaughter which the Libs wisely announced they’d be blocking yesterday.
And Woody concluded that the overall economic statement from Labor on Monday was “the familiar mixture of a few useful initiatives and rather a lot of bulldust relating to vision and strategic planning”.
And it sure looks like Chanticleer fell for the bulldust if the smile on Treasurer John Brumby’s face in Question Time yesterday was anything to go by.
The back page of the Fin Review is the most prestigious piece of journalistic real estate for the business community in the country. It’s meant to be definitive and bouquets should be handed out very rarely but yesterday’s Chanticleer read like a Labor Party press release.
We had lines such as Victoria’s “business-friendly image” and “clever politics” sprinkled through the column. Durie said allegations that Bracks ran a do-nothing government were “hollow” and said Treasurer John Brumby “is proving all the sceptics wrong by being fiscally prudent and politically clever”.
He also swallowed the line about $1 billion in business tax cuts when Bracks has actually increased the tax grab from business substantially in dollar terms.
He concludes his column by saying “all the stars and planets are lined up perfectly right now for his (Bracks) re-election”.
As if the flood of bouquets for Bracks wasn’t bad enough, Durie amazingly actually managed to take a swipe at the Kennett government which created this financial bonanza and strong economy in the first place. Given the various Labor capitulations on wage demands from public sector unions, this line was the most unbelievable of all:
“Fortunately for Bracks, the ghost of Jeff Kennett still looms large in Victoria and little legacies like a still uncompleted Federation Square project serve as a daily reminder how the former government cost the rest of the state big time in agreeing to union demands without actually delivering a result.”
All Bracks has done before this year’s budget is choked off funding for infrastructure projects and diverted it into recurrent expenditure feathering the nest of public sector unions. The property boom has saved his budget surplus and a few token morsels have been handed back in tax cuts. The Carr government’s reckless financial management makes Bracks look relatively good but John Durie needs to have a shower and a good sleep as he’s obviously been seduced and intoxicated by Labor spin.
Opposition press release on Bracks tax rip-offs
Maybe the answer is as simple as John Durie asking to receive Opposition press releases because this list of tax increases they compiled is factual and make his column look silly:
10-pronged rip off in Victoria
1. Police fines 1996/97 $91.5 million
1997/98 $93.5 million
1998/99 $99 million
1999/2000 $99.5 million
2000/01 $177.5 million 2001/02 $206.1 million
2. Municipal rates
Municipal rate revenue has increased from $1330 million in 1998-99 to $1543 million in 2000-01, an increase of $213 million or 16% – much greater than the increase in CPI.
3. Public Transport Fares
Public Transport Fares have increased by 7 per cent over the year to December quarter 2001. This compares to 3.8 per cent in NSW, 3.8% in Qld over the same period and 4.1 per cent nationally.
4. Land Tax
Since 1998-99, land tax has increased from $369 million to $525 million in 2000-01, an increase of $156 million or 42 per cent.
5. Insurance taxes
Taxes on insurance are expected to increase from $532 million in 1998-99 to an expected $721 million in 2001-02, a rise of $189 million or 36 per cent.
6. Motor Vehicle taxes
MV taxes in Victoria are expected to rise to nearly $1 billion for the first time in 2001-02 ($999.2 million), up from $896.7 million in 1998-99. This represents a rise of $103 million or 11.4 per cent.
7. Stamp Duty on land transfers/conveyancing
Stamp duties on conveyancing are forecast to increase to $1.8 billion in 2001-02, compared to $1006 million in 1998/99. This is a 79% increase in just three years.
8. WorkCover premiums
Premium revenue is forecast to increase from $1.185 billion in 1998-99 to an expected $1.591 billion in 2000-01, a rise of $406 million or 34%.
9. Payroll Tax
PRT is forecast to rise from $2131.9 million in 1998-99 to an expected $2602.4 million in 2001-02, a rise of $475.3 million or 22% under the Bracks Government.
10. Gambling taxes
Total Gambling Taxes in Victoria have increased from $1443.2 million in 1998-99 to a forecast $1778.6 million in 2001-02. This represents an increase of $335.4 million or 23.2%. The gambling tax take in Victoria is forecast to be $2015.1 million in 2003-04 – the first time it has risen above $2 billion.
Veteran analyst defends Bracks budget
Stephen, I seem to only write when I disagree with you – actually I subscribe because I like most of it. I didn’t read John Durie’s piece, but I think you have fallen under the spin on Victorian taxes.
First, there’s some glitch in your text – it’s totally unclear what your point 1 is. But second, the key question is: what is a tax rise? You don’t define it, but to most of us, it means a decision by the Government to raise tax RATES.
A tax rise or cut alters the rules, changes the amount of tax to be paid on a given amount of money. By contrast, you seem to be defining it as changes in REVENUE, even when no tax rates have been changed. There has been no rise that I am aware of in tax RATES applying to payrolls, conveyancing etc. Rather, booming demand has pushed up turnover and hence revenue.
Do the same at Federal level: income tax rates did not change between 1995-96 and 1999-2000, yet individual income tax revenue rose 36 per cent from $60 billion to $82 billion. Does that mean Costello raised income tax?
No, he just sat tight on rates while the money poured in as a result of good economic growth, a bit of inflation and a bit of bracket creep.
Company tax revenue likewise rose by a third in that time. Tax revenue from super funds more than doubled. Sales tax revenue rose 20 per cent. Apart from the super surcharge, I can’t think of any tax RISES which produced any of that. It was just the spinoff from growth – exactly what Bracks and Brumby are getting now. And if you want to be fair to them, unlike Costello, they have not waited four years to start handing some back – they had already announced a net $112 million of business tax cuts last year for 2002-03, so this is the second slice of the sandwich, so to speak.
I guess you’ve proved that they can’t please everyone, but I agree with Ewin Hannan – I think they’ve been amazingly skilful in oiling every squeaky wheel, paying for all of the $2 billion investment in infrastructure and still ending up with a large surplus. I suspect Stockers is quietly appluading them.
Third, speaking of Stockers, he actually brought down the 1999-2000 Budget, not Labor. As I recall, Labor came in a third of the way through the fiscal year, with Bracks initially as Premier and treasurer, and he changed very little until the 2000-01 Budget, which was Labor’s first. So your comparisons should start from 1999-2000 as the base year, not 1998-99.
See ya, name withheld
CRIKEY: Fair point. They did raise the charges for electricity (removed a subsidy) and water and also hit poker machines with an extra levy and now motrocyclists with one as well.
They’ve also dramatically increased the application of speeding fines but apart from that you are right.