Flat White

It’s boom time for the public service pen pushers

25 June 2019

6:14 AM

25 June 2019

6:14 AM

With the NSW Treasurer handing down the state’s 2019-20 budget last week, the big three states — which also include Victoria and Queensland — have now tabled their fiscal plans.

There are several common themes. Budgets are under pressure. Revenue has weakened because of the housing slump — to which stamp duty revenue is highly sensitive — and sluggish consumer spending.

All three states are running slender operating surpluses with (as usual) promises of better to come, based on assumptions that may prove too optimistic. They are all spending up big on capital works (‘infrastructure’), with $55 billion budgeted for 2019-20 alone. This spending, combined with slender operating surpluses, is producing large cash deficits and a rapid build-up in debt over the next four years.

Capital expenditure, provided it is wisely allocated, will benefit the economies of these states, but the associated growth in debt is worrying. Queensland already lost its triple-A credit rating long ago. NSW and Victoria cannot be relaxed about keeping theirs.

NSW is managing the pressures somewhat better, despite experiencing the biggest housing downturn. The state’s stamp duty revenue from property transfers slumped from $9.7 billion in the peak year of 2016-17 to a projected bottom of $6.9 billion in 2019-20. NSW has weathered this huge loss basically because it has taken a more cautious approach to manage operating expenditure (particularly staff costs) than Victoria and Queensland.

In the four years to 2018-19, state government employee expenses ballooned by 33 per cent in Victoria and 30 per cent in Queensland as both staff numbers and pay rates rose rapidly. The comparable figure for NSW was a more normal 18 per cent.

NSW is also in a better position now because of privatisations in recent years, which have resulted in a lower debt burden than the other states despite the large capital program. Queensland has shunned privatisations, while Victoria acted on most of its privatisation opportunities many years ago.

Reflecting the different approaches to expense management and privatisation, NSW is so far getting away without tax increases, whereas both Victoria and Queensland announced contentious tax increases in their budgets.

All three states’ budgets are light on anything that can be called ‘reform’. However, NSW has made a small gesture toward reform of property stamp duty by indexing thresholds to the consumer price index and is establishing its own review of reform of federal-state finances — which is welcome but will lead to very little without the cooperation of the Commonwealth and other states.

Robert Carling is a Senior Fellow at the Centre for Independent Studies.

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