The Australian federation has long featured the lop-sided structure of a federal government which raises most of the revenue, whilst the cash-starved states do the heavy lifting on services and capital investment.

This explains why we’re the world’s biggest gamblers because issuing pokies, wagering, lotteries and casino licences are one of the few means states have of raising extra cash.

With the Feds now rolling in cash thanks to the mining boom as the states collectively hurtle down the debt path to fund long-delayed infrastructure spending, something clearly had to give.

One option would have been for the Feds to pay off its residual $50 billion debt – something Peter Dutton pretended didn’t exist on AM this morning – and then simply become the central debt manager for the states.

Alas, this isn’t very politically sexy and would highlight just how profligate the Labor states have become in recent years.

The Rudd Government has instead hit upon a different strategy – a Federal takeover of infrastructure spending.

This is politically potent as all Labor Governments will be able to take the credit as projects are announced and delivered. Big ticket items do demand a national strategy.

However, the creation of all these special capital spending funds really are debauching the normal budgeting process.

Aren’t governments simply meant to make spending commitments through the budget in areas such as health, education, roads, rail and infrastructure?

Instead, capital spending is now being handled by under-budgeting for capital projects through the forward estimates and then claiming surpluses can be transferred into funds from which they are then spent. The $20 billion Building Australia Fund really is the biggest slush fund in Australian history and emulates the Bracks-Brumby strategy when they inherited a booming surplus from Jeff Kennett in 1999.

Peter Costello started the ball rolling on these dodgy schemes with his Future Fund, which was always a rort because the Howard government had allowed unfunded federal superannuation to blow out from $69 billion to $98 billion over its first decade, thereby overstating surpluses by a staggering $29 billion.

The Future Future was supposedly to fully fund the biggest black hole in Australia, but the honest accounting approach would have to simply increase budget allocations to federal super schemes, like everyone else has to do.

Now Labor has turned off the tap on the Future Fund, leaving a $50 billion unfunded super liability, $50 billion in standard government debt and a government still not really worth anything despite this apparent avalanche of record surpluses and burgeoning special purpose capital funds.

Listen to a chat with Deborah Cameron on St George yesterday.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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