Crikey has long held the view that the NSW Press Gallery has been soft on Bob Carr’s government for too long. What better way to measure their performance than their coverage of the 2002 state budget, delivered on Tuesday 4 June?

Let’s open up with a look at NSW’s most-read paper.

The Tele’s budget priorities can be summarised thus:

Pages devoted to budget coverage – 3.25 (and about a third of one page was a graphic of Bob Carr’s face superimposed on a “Bob the Builder” doll).

Pages devoted to State of Origin preview – 10.5 (admittedly, most of this was consumed by photographs and graphics, but you get the point).

State political reporter, David Penberthy, led the coverage, his analysis focusing mostly on what would be spent and where. He clearly identified it as an election-year budget, saying that it “cleverly allocated funds for dozens of smaller projects and initiatives across key electorates”.

Penberthy pointed out a new levy on commercial and residential developments over $50,000 and the miniscule drop in payroll tax from 6.2% to 6%, but said “the good news is this tax on jobs will no longer apply to apprenticeships”. He points out this will save businesses $9 million a year.

Chump change really, hardly “good news”.

Penberthy continued his “pork-barreling” theme in a commendably cynical comment piece.

“About the only thing the State Government hasn’t budgeted for in its Bob the Builder Budget is the ribbons… [T]his Budget is filled with medium to small to blink-and-you’ll miss them measures which will receive scant attention outside the areas they affect. Which, politically, is exactly the point… The Government can spend the next nine months cutting ribbons, smashing champagne bottles at Griffith’s new police station and the new school in Mullumbimby.”

Piers Akerman loaded up with a meaty 7 sentence “comment” piece, the purpose of which seemed to be to lament the “absurd $900 million reaped from conveyancing and stamp duty by public servants who perform no function, no noble service other than change a name on a title deed”.

Actually Piers, the state reaped an absurd $3 billion in stamp duty in 2001-2002. It received an additional $900 million in 2001-2002 thanks to the property boom, their original 2001-2002 estimate being $2.1 billion.

Had Piers even read the budget?

Had the sub who read Piers’ piece even read David Penberthy’s lead item? That would have surely alerted them to Piers’ error.

How robust then is Piers’ commendation that “Mr Egan’s budget is strong”?

The rest of the Tele’s “analysis” of the budget was a series of grabs on where the money was spent – education, transport, police, housing etc.

The Tele’s editorial on the budget is an exercise in superficialities. It recognises the Carr government’s seventh consecutive budget surplus (a very modest $168 million, mind you), achieved “against a backdrop of worsening economic conditions internationally, and with genuine pressures on its own bottom line”.

How so?

How do “worsening economic conditions internationally” squeeze the NSW state government, especially given that Australia – and especially NSW – has for all intents and purposes been isolated from the global economic downturn?

The states gets most of its revenue from state taxes and commonwealth grants, and a small amount in dividends from government enterprises.

Commonwealth grants, budgeted at $15.1 million for 2002-2003, have increased from $9 million in 1998-1999 and are forecast to increase to $16.5 million in 2005-2006.

No “genuine pressure” there.

State taxes are derived mostly from stamp duties and payroll tax (each comprising about a third of total revenue), gambling taxes, motor vehicle taxes, and land taxes (each just under 10% of total revenue) and odds and sods.

While the government forecasts stamp duties to be scaled back slightly from around $3 billion to around $2.7 billion, the state’s inability to accurately forecast stamp duty revenue in years gone by means this claim should be taken with a grain of salt.

Unless the bottom unexpectedly falls out of the employment market, payroll tax can be expected to at least stay the same if not increase.

Likewise, there is no reason to believe any of the other sources of revenue will decline.

So where are these “genuine pressures on its own bottom line” that the Tele speaks of?

Well, they must all be on the expenditure side. They don’t seem to be on the revenue side.

And how does the Tele explain the marginal surplus? “In part, through resisting the reckless big-spending of other Labor governments…”

You’re kidding us!

Your own front page trumpets in big print “BOB THE BUILDER” and David Penberthy’s lead article is headed “Carr’s $6.4 billion capital works spending spree”.

Do the editorial writers not read their own front page?

But they do go on to say that the surplus is also the product of “lack of imagination when it comes to addressing its tax regime, the most punishing tax regime in the country”.

Speaking of “lack of imagination”, the Tele editorial’s criticism of NSW’s “punishing tax regime” is hardly breaking news.

They give qualified praise for the “modest relief afforded taxpayers”, saying the “abolition of payroll taxes on apprentices would be more exciting if the Government had actually done something new on the more pressing question of the rate of this tax, well above our interstate competitors”.

It also makes the claim that “halving the rate of the general insurance stamp duty to 5 per cent will deliver real savings to households and businesses”.

What?!

The cut is expected to save households $40 a year!

That’s less than 11 cents a day! Don’t spend it all at once.

That’s barely enough to buy you the Tele’s entire State of Origin II coverage, assuming it were sold on a pro rata basis.

The Tele concludes its editorial with the observation that “an already cynical electorate will decide next March whether this is sound, targeted, spending, or the sound of hundreds of pork barrels rolling through key marginal seats”.

We submit that the Tele’s editors might have done better to assist their readers in reaching the latter conclusion.

At least their cartoonist was on the mark, with a “Bob [Carr] the Builder” asking “can we fix it?” and a voter at the ballot box saying “yes we can!”

The Sydney Morning Herald

The Herald again went with the “Bob the Builder” line and its lead article by Paolo Totaro and Robert Wainwright focused on the stamp duty windfall and the spend, spend, spend mantra, as does Ross Gittins’ front page opinion piece.

Once again, the lead article was merely a checklist of what was spent and where. Gittins’ opinion piece didn’t tell us too much that we don’t already know – this is a tax and spend government.

The tenor of the Gittins article was that this government has rapaciously raked in the tax dollars and the latest surplus is as much the result of good luck (in particular this year, the stamp duty windfall) as sound management. Gittins says “so great are Mr Egan’s revenue raising powers that he can regularly announce ‘cuts’ in the rates of a particular taxes and still end up with more revenue. All his many cuts won’t have prevented total revenue from growing by over 79% over his eight budgets.”

The Herald had a four page special on the budget, but really, it was your predictable post-budget superficial analysis.

Instead of the pithy summaries the Tele ran, the Yawning ran feature pieces on the environment, education, utilities, health, the yartz, and police / law and order etc.

Again, all of these just read as checklists of the government’s releases on where the money will be spent.

Paolo Totaro’s shortish opinion piece focused on “not what is in [the budget] but what is not”. Totaro looks at a $452 million Royal North Shore Hospital upgrade and points out that only $3 million of the next year’s expenditure is “new”, the remaining $17 million had already been announced. “It is a convenient, well-established pattern by the Carr Government – announce a major project with plenty of money and give it a long time frame. It makes for big electoral bang for a small actual buck.”

Totaro also notes that “the truth is that many of the much-touted projects… have all been announced before. A look into campaign history shows that in 1999 the Government spent about $300 million in its bid to retain office. Chances are there will be a hollow log of similar size somewhere but it will not be found until early next year.”

The Herald also dug into the post-budget bag of cliches and pulled out the vox populi segments with “the family”, “the self-funded retiree”, “small business” and the “property developer”.

Gee, don’t these segments just liven up the debate.

As far as criticising the government goes, the Yawning pretty much focused on its pet topics – “Helpless to get just 1.3% more” (Adele Horin bemoaning the miniscule budget increase afforded the DOCS) and “Gambling dependency grows to $1.27 billion”.

So, with a pretty disappointing critique from the Yawning’s budget coverage, we had hoped the editorial writers would weigh in with something meatier.

Wrong.

“No gimmicks in election Budget”, it trumpeted. It got worse from there.

It swallowed whole the government’s line about reducing “net state debt [which] has fallen from $12 billion, or 7.3 per cent of gross state product in 1995, to $5 billion, or 2 per cent. In four years, that should be down to less than 1 per cent. At the same time, debt plus unfunded superannuation and other liabilities have more than halved as a share of the state economy.”

But this merely reflects a switch of debt from “General Government Sector” liabilities to “Public Trading Enterprise Sector” and “Public Financial Enterprise Sector” liabilities.

The number quoted by the Yawning’s editorial team is merely the “Net debt” line contained in the “General Government Sector” liabilities.

The Herald’s editorial writers would have done better to have looked behind the Treasurer’s speech and checked out the “Net Financial Liabilities” projections, which include both “General Government Sector” debt and “Public Trading / Financial Enterprise Sector” liabilities.

The aggregate figures show that net debt will in fact increase in absolute terms from $36.9 billion in 2001 to $42 billion in 2006.

The Government itself recognises the funding of capital works put paid to their selective claims about strong debt management:

“State sector net financial liabilities are expected to increase by $1,203 million from $40,794 million to $41,997 million between 30 June 1998 and 30 June 2006 due primarily to the reduction in general government sector net debt being offset by higher public trading enterprise borrowings raised for funding capital works. Over the four year period ending 30 June 2006, borrowings will help fund improvements to water distribution systems, upgrades of sewage treatment plants and new rail and electricity infrastructure.”

In other words, we have to borrow to fund our public works, but in beating our chest about how we’ve reduced debt, we’ll just focus on our reduction in the “net debt” line which isn’t impacted by these borrowings.

The Minister’s claim (and the Herald’s endorsement of it) that debt is being substantially reduced in comparative terms should of course be tempered by the fact that the state’s gross product will continue to increase.

As an aside, it’s interesting (but not surprising) that the government doesn’t provide a comparative table of taxation revenue as a percentage of gross state product. That would make for interesting reading – we doubt it would be on a similar downward slide as the government’s much-vaunted debt figures.

But the Herald’s editorial did pour a decent drop of skepticism into the brew when commenting on the government’s inherently unreliable utilities revenue projections.

A lot of the editorial is devoted to platitudes which say absolutely nothing and which point to no concrete facts to back them up. “The Budget is generous where it matters but is not profligate. It does not fit the bill of a traditional precursor to an election nine months away. [Most would disagree.] It is not polluted by gimmicks. It is old-fashioned and postmodern. [What the hell does this self-contradictory rubbish mean?] It spends money according to need… It’s the economic hardheads of Treasury confronting political reality…”

We could go on.

By our assessment, the Tele landed more blows in 3 tabloid pages – thanks mainly to David Penberthy – than the Herald did in almost 6 broadsheet pages.

And the Terror had a much funnier “Bob the Builder” picture.

So much for the Herald being the thinking person’s newspaper.

The Australian Financial Review

Once again it seems that only former NSW Auditor General Tony Harris has cottoned on to the real story in the NSW budget for the Fin Review.

Where else would you read the following?

“But the Budget as presented might not happen. The most recent actual Budget results available, those for 2000-1, were released yesterday. It shows that actual spending for that year was $30.5 billion, an increase of $1.3 billion on the amount budgeted by the Treasurer. This meant actual spending in 2000-01 grew by more than 10 per cent instead of the 5.4 per cent announced on Budget day. The Government also has problems in estimating what is happening during the Budget year. This time last year, it advised that revenue for 2000-01 would be $35 billion – we now know it turned out to be $32.1 billion. Expenditure was thought to be $33.4 billion; it turned out to be $30.5 billion.”

In other words, the NSW budgets are not worth the paper they are printed on.

Being a national rag, the Fin only dedicated 3 pages to the NSW budget, but it was reasonably good stuff. It had to of course run through the nuts and bolts, but a fair whack of that was Tony Harris’ critique and critical reviews by Lisa Allen and Craig James.

The header for Allen’s “Plenty of pork for marginals” speaks for itself. Allen writes “despite Egan’s claim of no pork barreling, some of the new dollars point to a massive injection of funds where Labor needs it most to win next year’s state election.” Allen then goes on to list the big ticket items in the key electorates.

James picks up all of the government’s “sound economic management” claims and concludes that “in short, NSW’s fiscal performance does not stand out. But even more important, it is falling behind its key southern rival.”

James then goes on to list all the areas where NSW is lumbering behind Victoria – net debt as a percentage of gross state product, growth, tax rates etc – pouring some much needed cold water on Egan and Carr’s claims.

All in all, a typically polished performance in the Fin’s (admittedly restricted) coverage.

The necessary time was spent on covering the nuts and bolts (i.e. what was spent and where), but pleasingly, more than half of its coverage was on opinion pieces which actually critiqued and dared to challenge some of the government’s claims.

The Australian

The other national was again limited in being able to cover the budget, but probably didn’t critically review the budget as well as the Fin.

Again, the mix was about 50:50 in terms of “nuts and bolts” coverage against “opinion” pieces.

But the opinion pieces were, in our view, a little light on when compared to the AFR’s effort.

Alan Wood, who we generally have plenty of time for, chose to focus on one issue – whether Egan’s prediction of a slow down in the housing boom is on the money. It was a pretty light 200-worder or thereabouts but we suspect Wood was hamstrung in giving the state budget a decent once-over.

Mike Steketee gave a broad-brush thumbs up and focused on the political aspects of the budget. But we don’t think Steketee would have too many agree with him on this comment – “This is not a blatant election Budget because it does not need to be – unlike John Howard last year, Carr is not coming from a long way behind and doesn’t need to throw extra money at every bleating voter.”

Compare this to the AFR’s Lisa Allen and the Tele’s David Penberthy who both called it as a pork-barreling Budget!

Steketee also focused on whether the predicted slow down in the housing boom was warranted. Given that Wood spent most of his opinion piece on this, it was a doubling up that the Aus didn’t need given the limited space it had to play with the NSW Budget.

The Australian’s editorial team was a little more critical, saying “it is spending, of course, that is being emphasised by an administration in election mode”.

The editorial also emphasises Egan’s good luck in delivering a surplus and repeats Wood’s point that the extra capital expenditure can easily be turned off if the economy slows down, a far more responsible pork-barreling exercise than locking the government into unsustainable recurrent expenditure.

But taken as a whole, a disappointingly light-weight analysis from the Australian.

What the papers should have written up

At the risk of being accused of being miserable old grumblebums, we here at Crikey will accentuate the negative and eliminate the positive of the NSW budget. Here are some of the things that we reckon the NSW press missed.

The coverage lauded the government’s achievements in reducing debt as a proportion of gross state product. But the “Net Financial Liabilities” projections show that this figure will increase in absolute terms from $36.9 billion in 2001 to $42 billion in 2006.

So an increase in the absolute figure of over $5 billion in 5 years shows that the government’s reduction of debt levels in comparative terms is due solely to the state’s continuing economic boom.

None of the papers picked up on this and gave it to the government for talking up their debt-reduction credentials.

And speaking of debts, unfunded superannuation is a mystery.

In 2000, “general government sector” superannuation assets represented 79% of liabilities and there was total unfunded superannuation of $5.7 billion.

But a mere two years later, “general government sector” unfunded superannuation has blown out to $10 billion, with superannuation assets representing only 67% of liabilities.

By 2006, “general government sector” unfunded superannuation is expected to be $15.6 billion, with superannuation assets representing only 56% of liabilities.

Or that would be the case, if not for some fudging thanks to the “General Government Liability Management Fund”.

In 2006, this is expected to reduce the unfunded superannuation line by $4.5 billion, hence supporting the government’s line that unfunded superannuation will only increase by $1 billion over the next four years.

So what is this “General Government Liability Management Fund”?

Well, it beats us!

This is the description the budget papers give to the $4.5 billion they wipe off the unfunded superannuation figure:

“Includes the actuarially calculated increase in assets resulting from the tax benefits associated with the creation of the General Government Liability Management Fund on 30 June 2002.”

So superannuation assets are going to increase by $4.5 billion over 4 years thanks to tax benefits?

Whatever it is, it seems like funny money to us and worthy of far more rigourous scrutiny.

The other thing that worries us about the government’s unfunded superannuation projections is that it only looks at “general government sector” unfunded superannuation.

What is missing is the unfunded superannuation projection for the “public trading enterprise sector”. Admittedly, this is in the hundreds of millions rather than billions, but as the government corporatises more of its arms in future years, this will become increasingly important.

It was only $136 million in 1998, grew to $236 million by 2002 and appears from the summary liabilities statement to be on track to hit half a billion by 2006.

On this count, the government again appears incapable of reigning in its spiraling unfunded superannuation liabilities.

And can you believe that after an amazing economic boom, Treasurer Michael Egan is budgeting for a miserable $168 million surplus next year?

While the state’s seventh consecutive budget was rightly applauded, this year’s result really is underwhelming. The economy is still bubbling along – so much so that the RBA has again recently lifted interest rates – so there can be no argument for extra spending to pump prime the economy.

The best pointer to the performance of a state government is net migration and the NSW figures are rising each year and are now at an eight year high.

And if you didn’t think this was an election year budget, check out how much the expenses in the various government departments will blow out. Figures for each department are the 2001-2002 budget figure, the 2002-2003 budget figure and the percentage increase between the two:

Cabinet office – $14.9 million, $19.6 million, 31.5%

Premier’s department – $84.8 million, $101.1 million, 31.0%

Department of corrective services – $560.3 million, $612.1 million, 9.1%

Casino control authority – $5.6 million, $7.2 million, 28.1%

Meanwhile, the poor old Parliamentary counsel’s office (which drafts legislation etc), has to cut back its expenditure by one hundred grand!

ICAC doesn’t fare much better, getting a measly two hundred grand increase in its $15 million budget.

At least the Ombudsman gets something of an increase, going from expenses of $10.9 million to $12.6 million, an increase of 15.6%, but nothing like those enjoyed by the “non-neutral” government departments.

Meanwhile, the Government has factored in a cost of $30.6 million for the upcoming General Election.

So there are a few starters from Crikey’s amateur budget sleuths – over to the NSW press gallery to apply the blowtorch to the belly over Australia’s highest-taxing state government.

Peter Fray

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