Public sector accounting remains a sad joke in Australia – witness
Peter Costello’s failure to put a $29 billion blowout in unfunded
superannuation through his budget bottom line – but even worse
is the fact that the media so often buys bunkum. For instance, the
HeraldSun‘s editorial on Victoria’s finances today included this second paragraph:
Treasurer John Brumby’s budget is a something-for-everyone
document which, despite an outlay or $32.125 billion, has a projected
surplus of $317 million.
Bollocks. The big spending Bracks Government is actually forecasting
cash deficits of between $700 million and $900 million over the next
four years, which will blow out gross debt from $6 billion to $10 billion by
2010. And don’t let’s start on the net debt myth.
The Herald Sun is actually referring to what the government
calls the “operating
surplus”, but why on earth should a budget not include capital works on
new schools, roads and
hospitals when this is something that governments do? Sure, strip out
one-offs such as proceeds from the Snowy Hydro sale, but to report a
budget without dealing with regular capital expenditure is misleading.
Even worse than pretending capital works don’t exist, the Bracks
government has committed to an additional 16 projects worth $4.5
billion that have been funded through those off-balance sheet
public-private partnership ruses.
Then you have all this rubbish about new spending or tax cuts which
are tallied up over a four period. That led to some papers today
claiming the Bracks budget delivered “$1.4 billion in tax cuts”. If
everyone else can talk about things on annual terms, why does the
public sector introduce a 300% inflator?
Given that total Victorian government revenue over the next four years will be about $136
billion, we’re actually talking a very modest tax cut of about 1%. The
payroll tax cut from 5.25% to 5% is phased in over three years and the
saving in the first year is just $61 million, but this comes after
budgeted payroll tax receipts were revised up by $178 million to $3.357
billion in 2005-06, so the government is giving less back than the
windfall gain they’ve enjoyed thanks to a strong jobs market.
Then there are the trumpeted cuts in land tax rates, but you still have
to remember that the Bracks government inherited a land tax system that
delivered $378 million in 1998-99 and, even after all these so-called
tax cuts, is budgeted to deliver $747 million in 2006-07.
The other budget myth is that Victoria is not benefiting from the
resources boom and this ties in to the biggest and most important tax
cut announced yesterday – a 10% across the board reduction in WorkCover
premiums to a record low of 1.62% of payroll.
Yesterday’s cut will directly save $170 million in 2006-07 and this is
the third straight 10% cut in premiums so annualised savings will reach
an impressive $520 million – or $2.1 billion over four years in public sector speak. However, this has only been possible
because the stockmarket has almost doubled over the past three years
and that is being largely driven by the global resources boom and China.
The same applies to the $600 million that was ripped out of the
Transport Accident Commission – the government largely got this windfall
from its monopoly compulsory third party insurer thanks to booming investment returns.
Indeed, Victoria’s unfunded superannuation liability actually fell
by $2.8 billion to $12.5 billion in 2005-06 and this was also driven
good investment returns thanks to commodity prices and China.
Victorian taxpayers are even running a direct punt on the aluminium
price through the Cain Government’s 30-year power supply deal with
Alcoa where the tariff rises and falls with the spot price. Back in the
bad old days, taxpayers were subsidising the Portland and Point Henry
aluminium smelters to the tune of $200 million a year, although this in
part reflected the inflated costs of the old state-owned SECV.
Now the budget is forecasting taxpayers will make a profit of $486
million over the forward estimates because aluminium prices have soared
to record highs and Alcoa is now paying far more power than it costs
taxpayers. So please, enough of this stuff about Victoria not
benefiting from the resources boom.