Thursday, May 3, 2012
Is it taking us back to the Kennett era? Or is it, as Kim Wells claims, actually Labor's fault? Let's check some of that against the facts.
1. Does the government's pledge to cut 4200 jobs take us back to the Kennett era?
Not if you remember the Kennett era. By this stage of its life, the Kennett government had sacked 45,000 public servants, teachers, nurses and police. By its end, 81,000 state and local government jobs had gone: one in four!
The Baillieu government plans to cut its workforce by 4200 over two years. Treasurer Kim Wells hopes to do so by voluntary redundancies, targeting back-office jobs where there is duplication between departments and agencies, or between federal and state programs. People will be sacked only if those numbers fall short.
The state public service now has 37,000 people, up from 23,000 in 1999. Even if all 4200 job cuts come in that core, it would still have 33,000 left. It's not even Kennett Lite.
2. But do we really need it? Has state revenue collapsed?
Sure has. When the government took office, Treasury estimated that Victoria in 2012-13 would have revenues of $49.7 billion to spend. Within 18 months, on unchanged policies, that had shrunk by almost $2 billion, to $47.75 billion.
The government's revenue hikes on WorkCover, water authorities, vehicle rego, car taxes, stamp duties, tax compliance and fines have added $600 million to lift that to $48.35 billion. But it still leaves a gap of $1.35 billion that would have sent the budget into deficit, were it not for spending cuts.
Most of the revenue collapse has come from the GST. The retail slump and the Grants Commission's decision to cut our share of GST money has cost Victoria $1 in every $8 it had expected from its biggest tax. The slump in house prices and sales has created an equally sharp fall in its stamp duty. And the state has few tax options.
So it had to cut spending. It says it's lopped off $1.15 billion in savings. But in net terms, spending will be down just $650 million, or 1.3 per cent, from the forecast Treasury issued in 2010. That's frugal housekeeping, not liposuction surgery.
3. Why do we need a surplus, anyway?
Victoria's budget surplus is not like the Commonwealth surplus. It just means that revenue pays for recurrent spending the cost of running schools, hospitals, public transport, police, and so on, and a bit over.
The bit over is then spent on infrastructure. In 2012-13 the state plans to invest a record $5.8 billion in infrastructure, roughly half from its own funds and half from borrowing. The surplus is not being banked, but invested.
Second, Victoria has own-source revenues of $26 billion, a fraction of the Commonwealth's $375 billion. It has far less ability to rebound from deficits to sustain a balance over the cycle. The target to run surpluses of $100 million is a modest one.
4. Was it all the Labor government's fault, as Wells claims? Did Steve Bracks and John Brumby put Victoria on an unsustainable fiscal course?
No, that claim is phoney. The "unsustainable course" it refers to is the sudden spike in spending during the GFC, when the federal government paid the states to build school halls and the rest.
But that was never going to be sustained. When Brumby lost office, state spending was growing at only 2 per cent.
The truth is that B&B had a splurge in their first budget in 2000-01, then settled down to steady, AAA-rated fiscal responsibility.
Between 2001 and 2008, revenue grew on average by 6.7 per cent a year, and spending by 6.8 per cent. Big deal!
What is unsustainable is raiding the funds of state agencies, as Baillieu and Wells did to produce this surplus. Pots should not call kettles black.