By Stephen Mayne
The biggest spending Victorian
budget in history was well received yesterday as the Bracks government
quite dramatically switched the focus from spending more on public
servants to cranking up capital investment.
To understand Victoria’s budget and balance sheet you need to go
back to what Treasurer John Brumby inherited from Jeff Kennett 1998-99,
when total budget sector employee costs were only $7.4 billion. The
Kennett government slashed the public sector workforce from 260,000 to
about 160,000 in an exercise that largely remains unprecedented
anywhere in the civilised world over the past 50 years.
The Bracks government set about restoring some of the slashed
services and billions of extra dollars were poured into coppers,
teachers, nurses and the like. This explains the 67% surge in
employee costs to $11.8 billion over the six years to 2004-05.
That’s an extra $4.7 billion a year hit on a budget that was in
surprlus to the tune of $1.5 billion in 1998-99.
However, there was a major shift in the rhetoric yesterday with no
more talk about extra nurses and teachers – they’ve already more than
got their whack. No, now we’re going on a $10 billion infrastructure
spending spree over four years to improve the facilities that all these
public servants work in. New schools, cop shops and hospitals will be
popping up all over the place, but the only problem is that Victoria is
going back into debt to fund it.
I asked the following question of Brumby yesterday: “If you’re
projecting ongoing budget surpluses of more than $300 million a year
through the forward estimates, when does net debt start to creep up?”
Brumby explained that the surpluses were only dealing with
recurrent spending and $3 billion of the $10 billion infrastructure
splurge would come from a rise in net debt. However, Brumby was still
trying to be cute as he emphasised that only $800 million of this would
be “new borrowings”, the rest being a run down of cash reserves and
some accounting changes, such as the arrival on the balance sheet of
the funny money Spencer Street station redevelopment in 2007.
This just doesn’t add up and we can only quote page 208 of budget
paper number 4 which deals with Loan Council Allocations and “each
government’s net call on financial markets in a given financial year”.
In last year’s budget, Brumby predicted it would be hitting the
financial markets for a net $1.15 billion in 2005-06, but yesterday
this blew out to $2.02 billion.
Then you have the largely unreported accounting change yesterday
that blew out Victoria’s unfunded superannuation liabilities from $11
billion to $17 billion, so we’re back to the level that caused Jeff
Kennett’s “super crisis” and joint sitting of Parliament in 1993. It
seems governments can longer assume their super funds will generate
annual returns of 7.5% and instead have to go with the long term bond
rate. Brumby gloated about pre-paying super commitments yesterday but
the $6 billion liability blowout was downplayed.
The Bracks government inherited the strongest finances of any
incoming state government over the past 30 years, with the obvious
exception of Queensland which retains a balance sheet about $20 billion
stronger than Victoria.
However, this has been slowly eroded by big spending programs and
the best evidence of the squandered inheritance being its admission
there was no room left in the budget to fund the Mitcham-to-Frankston
freeway, even with a $600 million contribution from Canberra.
Victorians still seem reasonably happy with the tax and spend
approach being adopted, although land tax and speeding fines have
caused problems and any economic downturn would send the budget
tumbling towards a $1 billion deficit in no time at all.