Wednesday, November 10, 2010

Promises wipe out Victoria's $4.4bn surplus

IN MAY, the Brumby government's budget forecast $4.4 billion of surpluses over the next four years. Treasurer John Lenders pledged "hand on heart" that those surpluses would not be used to fund election spending.

But that was May. The election is now. And, on current trends, there will be very little of that $4.4 billion left by the time it's over.

Treasury's pre-election budget update shows that by the start of the campaign, $1.2 billion of surpluses had already gone, mostly to fund the government's $630 million regional package, its bushfires response and its climate change package.

Since the campaign began last week, the government has committed a further $2.4 billion in new spending over the next four years, mostly to reduce hospital waiting lists. And there's more to come.

That's not a serious problem. The budget will stay in surplus, thanks to years of conservative budgeting by both sides. Net debt within the budget sector itself is only $8 billion and is forecast to peak at $15.7 billion or 4.3 per cent of GDP in 2013. Global ratings agency Standard & Poor's has just reaffirmed Victoria's AAA rating.

But Labor will have to be careful from here on, and the Coalition will have to be very careful. It has banged the drum about dangerous debt levels for years, yet now it comes into the state campaign proposing a lot of new spending, but virtually no savings.

Sending thousands of offenders to jail rather than issuing suspended sentences will cost real money. So will providing another 1000 or so protective service officers and transit police. These are not cheap solutions.

One can be sceptical about Labor's estimate that the Coalition's pledges so far imply $4.2 billion in new recurrent spending.

But they are going to cost us, and Team Baillieu needs to be open about telling us how much, and how it will pay for them. Accountability begins here.