New South Wales is asserted to be facing a financial crisis necessitating a mini-budget. In fact the revised estimate of NSW State debt, at just under $8 billion, is miniscule and the overrun of $900 million in the recurrent budget - anticipated as a result of the shortfall in stamp duty on property - is near inconsequential. Cutbacks will drive the State further into real crisis in transport, schools and hospitals. The assertion that the State’s credit rating is threatened is mere intimidation.
This year’s budget
Treasurer Michael Costa’s last budget for 2008-09 revealed net debt at June 30, 2008 as $7.8 billion or 1 per cent of GSP (Gross State Product): it was anticipated that debt would be not much more by June 30, 2012. Budget revenues, $47.6 billion for the forthcoming year, were anticipated to rise modestly and the expenses forecast was of the same order. Capital expenditure was estimated at $5.5 billion for the year and similar amounts were planned through 2012. “The … balance sheet is currently strong [and] net debt and fnancial liabilities will remain at sustainable levels” say the budget papers.
At his extraordinary press conference on the morning of Friday September 5, while the Labor Caucus was ousting Premier Iemma, Treasurer Michael Costa painted a picture of a government budget in near crisis.
Blowouts in the recurrent budget because of declines in stamp duty receipts were said to be driving the surplus down by $900 million to a deficit of $700 million and the Iemma government’s failure, after a long and vitriolic campaign to gain approval for sale of electricity assets, together with blowouts in capital works related particularly to the health area, would necessitate a pushing out to later years of originally proposed projects.
Unless remedial action was taken through a mini budget, which Mr Costa generously offered to present, the State’s credit rating would be compromised and interest on debt would threaten the State. The media seems to accept these statements and the new Premier at least initially also acknowledges the impending disaster.
The views of economists, and the situation in the real world of state economies internationally, reveals a quite different picture. Costa’s vision of the State’s finances represents the real danger.
Costa’s (and Treasury’s) assertion of unsustainability rest on two ideological positions: first that the recurrent budget result should always be a surplus; and second that there should be minimum current debt.
Estimates of budget surpluses are just that - estimates. The overrun of some $900 million is less than 2 per cent of total revenue. (In fact the difference between the budget and actual net result for last year was of the same order!) There will be more changes right through the year necessitating further revised estimates of the position at the end of the year; there always are.
Since the adoption by governments of the market or business model - in New South Wales by Harvard MBA graduate Premier Nick Greiner - there have been ongoing reductions in the operating budgets of government agencies through across-the-board cuts, non-funding of awarded salary increases and the notorious “efficiency dividends”.
So far as attempts to bring improved performance together with greater accountability and transparency to the conduct of government services are concerned, the “reforms” have been a failure. Health, public transport, community services, public utilities and many other areas are in no better shape than 30 years ago, except financially in some areas. And they provide fuel to the Opposition for their attacks every day.
Scores of protests, media articles and expert opinion have pointed out the failures.
The abject farce attending the introduction of a universal ticketing arrangement across all public transport - something brilliantly successful in places like Japan, Hong Kong and Singapore - is a good enough example.
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