Thursday, May 5, 2011

Victoria Budget: Tougher next time, Wells

TREASURER Kim Wells has flagged a tough budget next year, with the state government set to take hard decisions on spending cuts so it can stop relying on debt to finance Victoria's new roads, railways and other infrastructure.

In the wake of Tuesday's unexpectedly mild budget, Mr Wells told a post-budget lunch the Baillieu government's ultimate goal is to pay for its infrastructure spending out of current revenue, not borrowing.

If it is to keep building at current levels, that would require big tax rises or spending cuts. Next year, the government plans to invest $6.1 billion, and pay for it with almost $5 billion of new debt.

By 2013-14, the budget forecasts, net borrowing would shrink to $1.2 billion a year, but largely because infrastructure spending would shrink to about $4 billion far below the level urged by the task force on state finances, headed by the Kennett government's Treasury secretary Mike Vertigan.

Mr Wells told the Committee for Economic Development of Australia the Vertigan taskforce will now investigate government services to suggest where and how spending can be cut.

Mr Wells said this year's budget was the wrong time to tackle Victoria's reliance on debt financing.

"We had a choice to make," he said. "Do we fix the debt issue this year, or do we deliver our election commitments? The people expect us to deliver our election commitments, so we have done that."

The first report of the Vertigan task force last month said spending cuts of at least $2 billion a year are needed to allow the government to finance an adequate level of infrastructure spending from operating revenue. It proposed net infrastructure investment of 0.5 per cent of gross state product (GSP) as the benchmark.

But Tuesday's budget foreshadowed net investment of just 0.02 per cent of GSP in 2013-14, and 0.12 per cent in 2014-15, a tiny fraction of the current level of 0.78 per cent. .

Mr Wells yesterday declined to respond to the Vertigan team's proposals, other than to endorse the principle of paying for infrastructure spending from taxes rather than long-term debt.

Shadow treasurer Tim Holding said he had no qualms about the sustainability of the budget debt levels, but accused the government of breaking a promise by failing to outline a strategy to reduce debt.