If the mainstream media are fair dinkum about providing some serious
coverage of the Victorian election, the phone should ring today as this
piece blows apart many of the Bracks government’s claims on fiscal
management and the figures on the Commonwealth Games are nothing short
of a blatant rort.
It was Labor’s union power, factional
squabbling, chronic inefficiency, dodgy accounting and spending
blowouts which caused Victorias great financial crisis in the early
1990s. Labor was given the keys to the honey jar again after 7 years in
the sin bin so lets just look at their record in office.

Firstly, lets deal with the question of whether the ALP is able to
contain spending blowouts which have averaged 10 per cent a year over
their three years in office.

The most salient and recent budget adjustment on this score is
surely the $200 million blowout in employee costs. In May Treasurer
John Brumby predicted employee costs would be $8.84 billion in 2002-03
but the figure now has risen to $9.1 billion.

Steve Bracks and Robert Doyle were arguing over the public sector
numbers during the great debate. The simple solution to this is for the
release of public sector job numbers over the past 10 years.

You’ll find that Jeff Kennett slashed the public sector from about
260,000 to 160,000 during his seven years in power and that Steve
Bracks has added more than 10,000 to the payroll, at an ongoing cost of
about $500 million a year.

Total numbers and total salaries are growing quickly as some of
the public sector wage deals amounted to 9 per cent last year alone.

The office space required is certainly blowing out. The Department
of Treasury and Finance annual report reveals that the forecast office
space requirement of 420,000 square metres in 2001-02 actually blew out
to 449,000 square metres.

Colebatch far too generous

Commentators such as The Age’s Tim Colebatch lauded the budget update but failed to dig deeply into the question of where it came from.

For instance, since the May budget, Labor has further raided
Victoria’s government business enterprises as GBE dividends in 2002-03
have leapt from the original May prediction of $406.5 million to $547.3
million.

Whoopee, an extra $140 million. So, where did it come from?

First, there was a one-off payment from the privately owned gas
industry after the Bracks government delayed the introduction of retail
competition. Can anyone explain how this works?

Secondly, we had the final instalment in a $240 million black spot
dividend from the Transport Accident Commission. This is not really
responsible when you consider that the TAC has just reported a $160
million loss, only a slight improvement on the $192 million loss in
2000-01. Shades of yesteryear here folks as the final Kirner Government
in 1991-92 proposed a $600 million special dividend from the TAC. When
in trouble, raid the hollow logs.

And during these times of water restrictions, the Bracks
government is not holding back in ripping extra budget contributions
out of the government-owned water industry. After Jeff Kennett froze
water prices for a couple of years, Bracks went back to the old annual
increase and then jacked up dividends from water from $265 million last
year to a forecast $304 million this year in the May budget. They have
now increased it again for 2002-03 by an unspecified amount in the
latest budget update. Ripping almost $400 million in profits out of
water industries to prop up the budget at a time of water restrictions
and drought is not a good look. Its just a shame that the mainstream
media haven’t cottoned on to this.

Funny money deal on Spencer Street

Enron’s biggest sin was setting up off balance sheet structures
that housed loads of debt and the Bracks government are following the
lead of Cain and Kirner in this regard.

Look no further than the proposed redevelopment of Spencer St
station. Rather than just kicking in $250 million upfront in a
transparent and cost-effective way through the budget, the Bracks
government instead opted to contribute about $30 million a year for 30
years.

So, how does this translate to the public sector balance sheet? The budget update notes the following:

The increase in net debt in 2005-06 reflects the balance sheet
impact flowing from the completion and handover to the state of the
Partnerships Victoria Spencer Street station project.

Helped by treasury gurus such as Bruce Rasmussen and Mike
Fitzpatrick, the Cain and Kirner governments were the past masters of
these funny money project financing deals which avoid Loans Council
limits and remained off-budget. The National Tennis Centre, the
Magistrates Court, the government car fleet, public transport rolling
stock, the Monash Medical Centre and a bunch of police stations were
all financed this way.

And doesn’t the Bracks government have an appetite for similarly
complex deals that don’t go through the budget. The 2001-02 Treasury
annual report reveals that an additional $700 million worth of
public-private partnerships like Spencer Street are currently out to
tender with a possible $2 billion more under consideration. A
responsible and transparent government would just fund these deals
openly and cheaply through the budget but they’ve blown the surplus
badly and are now resorting to all sorts of smoke and mirrors tricks.

Seal Rocks

When the Supreme Court orders a party to pay more than $60 million
in damages, a responsible financial manager would run this through the
budget. But not the Bracks government which has decided to spend
another truckload appealing the recent Seal Rocks decision, which
enables them to record this as a contingent liability and keep the
election budget looking better than it really is. Prudent and
conservative accounting would take the hit now which is what the big
banks do on their bad debts whenever they start to look shaky.

Where is the Premier’s Department annual report?

The government dumped a whole heap of annual reports on the
Thursday before sprinting to the earliest possible election which
contrasts with the promises to be open and accountable. Interestingly,
the Premier’s Department was one of the few not to be tabled, which
immediately raises suspicions that there is something to hide in this
year’s report. Has any political hack bothered to ask why the
government has sat on it till after the election. The Beattie
Government recently copped an absolute shellacking when their Premier’s
Department annual report revealed an advertising spend of $40 million.
Would the depth and breadth of the 20-strong PR machine now in place in
Bracks office have been revealed in that annual report?

Superannuation Budgeting

Buried in the Department of Treasury and Finance annual report was
a note that $1.76 billion had been lost in 2001-02 on the various state
superannuation funds. However, the budget update only took a $655
million hit on the forecast superannuation payout for 2002-03, bringing
the total annual superannuation cost for 2002-03 to $2.368 billion.

The Kennett government slashed the public sector from 260,000 to
160,000 and reduced unfunded public sector superannuation liabilities
from $18 billion to $11 billion over seven years.

The Bracks government has let this blow back out to $13.38 billion
as at June 30, 2002 and it is budged to increase by $616 million $13.9
billion by June 2003.

How’s that for a coincidence? The Bracks government is claiming in
their election budget update that they are on track for a surplus in
2002-03 of $542 million but if they funded their own superannuation
schemes enough so that they merely stood still financially, the overall
budget would be in deficit to the tune of $72 million.

The contrast with the Kennett record of bringing unfunded super liabilities down by $1 billion a year could not be more stark.

All these promises to keep hiring more police and nurses will
undoubtedly further blow the superannuation budgets and we are very
interested to hear from Liberal coster Neville Norman and Labor’s firm
PwC, as to whether they are including the full superannuation costs in
their figures.

Net debt what a fiction

Labor governments in Queensland, NSW and Victoria are now
specialising in using net debt figures when talking about their balance
sheets.

Crikey is very surprised that Victoria’s Treasury Secretary Ian
Little is allowing this accounting which claims in the budget update
that Victoria’s net debt is now only $1 billion.

So how does this reconcile with the latest annual report from the states central debt manager, Treasury Corporation of Victoria?

Crikey picked up a copy of the 2001-02 TCV annual report on Friday
and discovered that Victoria’s gross debt is $12.5 billion at the
moment.

Now I challenge anyone to come up with $11 billion worth of cash
sitting in a state bank account somewhere which magically reduces net
debt to $1 billion.

They might be able to find some cash sloshing about, but it is
largely set aside for other liabilities and can’t be used to net off
the official debt figures.

If net debt is really only $1 billion, why do we have $12.5
billion of debt in the market. And we are busily rolling it over at the
moment too. Last year TCV borrowed $800 million from Japanese mums and
dads and $3 billion in Europe. That is not the action of a debt issuer
which really has just $1 billion in net debt.

The cost of the early election

The state election was not meant to be called until the 2003-04
financial year so it was a little surprising not to see the $30 million
cost of running the poll included in the budget update. Can anyone
explain this apparent omission or was it already in the 2002-03
figures? And don’t forget the estimated $8 million that will go to
political parties after Bracks introduced political welfare that sees
candidates who get over 4 per cent score $1.20 for each vote.

The forward estimates and speeding fines

It is vital for the credibility of the Bracks government to be able to forecast budget surpluses in the forward estimates and
they are claiming overall surpluses will be as follows:

2002-03: $542 million

2003-04: $341 million

2004-05: $467 million

2005-06: $628 million

That 2003-04 figure is interesting because the Auditor-General
recently let slip that speeding fine revenues are tipped to be a
massive $446 in 2003-04. If you took the figure back to the $99 million
that the Kennett government collected in their final year, this alone
would put them in deficit next financial year.

Fudging the Commonwealth Games costs

If Victoria is to match the scale of the Manchester Commonwealth
Games, the budget update acknowledges we will have to spend $500-$600
million. The May budget claimed they could not make proper estimates
until after the Manchester Games. Steve Bracks led a large Victorian
delegation to the Manchester Games but three months later there is
still no proper costing.

For instance, check out this extract from an Age article of June 29:

The State Government has asked Canberra for up to $500
million to help stage Melbourne’s 2006 Commonwealth Games amid concerns
of a budget blow-out.
Commonwealth Games Minister Justin Madden said the Federal Government
had not contributed to the cost of the Games, in which countries
representing a third of the world’s population would compete.

He said Canberra contributed $1.4 billion to Sydney’s Olympic Games,
and called for a pro-rata contribution for Melbourne’s Games.

“Anything less than $470 milllion would be a bit of a kick in the guts for Victoria,” he said.

Mr Madden’s comments came as Melbourne’s Commonwealth Games chairman,
Ron Walker, revealed Games organisers had asked the State Government
for a boost to their $500 million budget.

Mr Walker would not say how much he had sought, but told The Age the
cost of the opening and closing ceremonies had risen and that, after
the Sydney Olympics, people had high expectations of events and
facilities.

In late 2001, state Auditor-General Wayne Cameron reported the official
government estimate for the Games, based on the 1998 bid documents, was
$195 million.

The budget is expected to be finalised within two months after next month’s Manchester Games.

So much for finalising the budget within two months.

The latest Treasury update concedes that only $190 million for
operating expenses and $86 million for capital has been spent or
provided for in the forward estimates.

Even the capital projects have been fudged. Another $50 million is
to be spent on a second pool, stadium and car park at the Melbourne
Sports and Aquatic Centre and the government separately announced a
$145 million taxpayer contribution to the Commonwealth Games village in
Parkville. Yet the combined cost of the two projects in the budget
update is only put at $86 million.

This is what Steve Bracks said about the Commonwealth Games
village when announcing Australand had won the contract on October 23:

The government’s total development cost of $144.3 million
will be offset by revenue from housing sales of approximately $58
million, leaving a net cost of $85.4 million.

Does this mean the swimming facility for the Commonwealth Games will
only cost $400,000. This sort of dishonest budgeting is just
breathtaking and it is amazing that the media is buying it and the
Liberal Party are yet to point it out.

Convenient actuarial releases from govt insurance schemes

Actuarial assessments are an inexact science at the best of times
but how convenient that the Bracks government has had two favourable
actuarial reviews of its two insurance schemes heading into an
election.

The Transport Accident Commission and the Victorian WorkCover
Authority are both chaired by James Mackenzie, who is regarded as quite
a Labor-friendly business leader.

The WorkCover annual report reveals right up the front that a
favourable actuarial review has created a $121 million improvement in
the net position, but you have to go all the way to the fine print on
page 39 of the annual report to find that the funds net deficiency blew
out from $682 million to $781 million over the past year. Thank god it
wasn’t a $121 million actuarial blow-out, as that would have left the
scheme with an unfunded liability exceeding $1 billion.

The Bracks government has failed to close the WorkCover funding
gap despite jacking up premiums which are now 2.22 per cent of payroll
or some 43 per cent higher than Queensland but lower than every other
state.

The TAC annual report reveals an actuarial release of $150 million
but this is not enough to stop another annual loss. But there’s no
doubting the Bracks governments thirst for money as they keep ripping
out dividends, tax-equivalent payments and special black spots road
funding into the budget from the TAC.

Thankfully the TAC remains fully funded and actually still has a
surplus of $690 million, down from $940 million a year earlier. The
brilliant no-fault monopoly scheme was set up by the Cain government in
1986 and has proved to be its finest achievement.

Taxpayers never put a dollar of capital into it but this hasn’t stopped
the Kennett and Bracks government from ripping out more than $3 billion
when the money actually belongs to motorists and should have been
ploughed back into lower premiums.

However, the Kennett government did not raid the piggy bank when
the TAC made a loss, something the less fiscally responsible Bracks
outfit has no qualms in doing.

A spending spree on cops

Victoria already has a crime rate that is 20 per cent below the
national average and the Kennett government increased the police budget
by 34 per cent from $582 million to $782 million during its seven years
in office if you believe their police spokesman Kim Wells.

I can’t find an equivalent figure just for the police service in
the May budget and the latest budget update only reveals that the
overall Justice budget has blown out from $2.193 billion to $2.216
billion in 2002-03.

The police budget was the one area that was not cut by Kennett in
its early years and Jeff Kennett last week claimed the police always
got what they claimed was needed to run the force.

This has not stopped the Kennett government getting whacked around
the head for allowing attrition and early retirements to reduce cops on
the beat by 800 when they promised to increase the figure by 1000.

The Cain government settled a couple of industrial disputes with
the cops by dramatically increasing the generosity of their
superannuation schemes. When Kennett tried to slash super entitlements,
the one area which he largely left alone was police and emergency
services who get the equivalent of 20 per cent of their salary in
superannuation benefits each year.

Not surprisingly, the Cain and Kirner government never properly
funded this so Kennett inherited a $2 billion black hole in the
Emergency Services Super Scheme (ESSS) which Kennett and Stockdale
completed funded without any fanfare over the following 7 years.

The Bracks government then came along promising to put an extra
1000 cops on the street and now both sides of politics are promising a
similar increase again. Lo and behold, the ESSS scheme has just gone
back into deficit for the first time in 5 years and with police super
being so generous, I’ll bet you London to a brick that neither side of
politics will properly cost the superannuation side of bloating the
force like this.

In conclusion

In Crikey’s humble opinion, this analysis belts significant holes
in the claims of the Bracks government in relation to responsible
fiscal management. Having worked as Stockdale’s spindoctor in Treasury
for 18 months and then also ratted on Jeff Kennett at the last
election, Crikey is well placed to make hard-hitting and independent
analysis.

The mainstream media owe it to their readers and listeners to give
some of these issues a decent run. The likes of Terry McCrann and
Stephen Bartholomeusz should be called in to bring some rigorous
analysis to the coverage offered by the two daily Victorian newspapers.

Has anyone called Alan Stockdale, former auditor general Ches
Baragwanath or former Treasury Secretary Mike Vertigan to ask them what
they think of the figures.

Crikey is very disappointed that independent treasury officials,
particularly someone of the callibre of Ian Little, a former chief
economist at ANZ, have gone along with some of this very aggressive
accounting. It borders on deception and the Commonwealth Games figures
just blatantly understate the real cost for obvious political purposes.

Labor should have learn’t from the debacle that was Cain and
Kirner that integrity in accounting is just as important as the tax and
spend policies.

In Crikey’s book they have been a major disappointment when it comes to responsible budgetary management.

Peter Fray

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