13/05/2013 - 16:07

Tale of two budgets

13/05/2013 - 16:07

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Tale of two budgets

RARELY do two budgets – Tuesday’s federal budget, which was the last before an election, and the August state budget, which will be the first after an election – send such conflicting messages.

You could be excused for thinking they relate to different countries.

At a time of increasing economic uncertainty, and predictions that China’s growth rate will start to wind down (with significant implications for Western Australia, especially), why are big ticket items being foisted on taxpayers from Canberra at the same time as the state government is desperate to trim spending?

It begs two questions. The first, just what is going on? The second, is there a common factor?

There is growing acceptance that federal Treasurer Wayne Swan’s sixth budget will be Labor’s last in the current political cycle – and possibly the last for some years. A Tony Abbott-led coalition is at short odds to take over after the September 14 poll, probably with a big majority.

It would appear that Julia Gillard is determined to leave a significant legacy from the Labor years. The National Disability Insurance Scheme is designed to be just that, with the reforms for school funding recommended by the Gonski report as a back up. But the jury is still out on whether just committing more money to schools achieves the desired changes.

Revenue is the big problem. The mining tax has been a huge disappointment to Treasury, and the carbon tax can hardly be described as a great success, even as our political leaders claim the Australian economy to be the envy of most other advanced countries.

Ms Gillard and Mr Swan have jettisoned some promised sweeteners to improve the budget bottom line, but the $17 billion revenue shortfall still means more budget deficits.

It’s a different story on the state front, even though the days of former Labor treasurer Eric Ripper’s turbo-charged economy producing $1 billion-plus surpluses, backed up by shrinking state debt, seem long gone.

To give Mr Ripper his due, I was among many who believed he could have overseen more concessions on stamp duty in the property area, which was a huge source of revenue. And payroll tax receipts also jumped, as both the workforce and rates of pay – especially in the resources sector – took off.

But Mr Ripper resisted the pressure from some commentators, and his ‘spending’ ministers, and maintained fiscal discipline to help cushion against the slowdown that would inevitably follow.

Premier Colin Barnett’s decision to end royalty concessions for the iron ore miners, during which time they were enjoying astronomical prices, added significantly to revenue but has proved to be a double-edged sword. The Commonwealth Grants Commission interpreted this revenue as something of a windfall for the state, and cut the reimbursement of proceeds from the GST accordingly.

That is beyond the state’s control. What isn’t, however, are the spending decisions. Treasurer Troy Buswell might blame his current problems on mysterious “underlying structural budget issues”, but there are areas where government decisions have compounded its problems.

A major challenge lies in what state Treasury officials like to call ‘recurrent outlays’. They are the day-to-day expenses involved in keeping the government departments, agencies and services ticking over. In 2004, recurrent outlays were $11 billion. This year they came in at $25 billion. That’s an increase of more than 100 per cent in nine years; and revenue has failed to keep pace.

Salaries comprise about 50 per cent of the recurrent spending. That is why governments usually agonise over public sector pay increases. Ministers can make heroes of themselves by approving generous pay rises to teachers, nurses, doctors, police and prison officers or white-collar public servants, possibly for short-term electoral gain. And talkback radio is always clogged with callers saying how many of these key workers are paid a pittance.

Witness how quickly the nurses’ pay claim was generously settled during the March election campaign.

The downside, though, is that there is always a day of reckoning, and that is linked with the budget bottom line.

Another factor in state spending is the Royalties for Region account. Mr Barnett will see that as one way to ease the pressure as some of that money is siphoned off for basic spending, as opposed to top-up amounts, for regional areas.

The key difference underlying the two budgets is that, barring a miracle, the Gillard government is coming to the end of its run in Canberra. Mr Barnett and Mr Buswell, however, can expect to have three more budgets before they again face the voters.

Some tough medicine now might ensure more budget surpluses and restore the WA patient to robust health by 2017. It might also help the Liberal-Nationals alliance to a third term in power; and even a legacy.

 

 

 

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