Bracks' Wage Battle

While budgetary issues are unlikely to dominate the coming State election as they have in the past, they will be a key issue.

One of the main questions will be:  whether the Bracks Government in "old-tax-and spend" Labor or "new-fiscally-responsible" Labor?

The Financial Report of The State of Victoria 2001-2002 released this week provides the first real overview of the Government's record.  And while there are questions in some areas, in general the Government record is New not Old Labor.

The Bracks administration has restrained government growth to below the level of general growth in the state economy.  It has shifted spending priorities towards health, education, public safety and infrastructure.  They have avoided many of the more wasteful infrastructure projects advance whilst in Opposition.  They are involving the private sector in infrastructure development and service delivery.  They have increased charges for various government services, thereby using price signals to limit the growth in demand.  They have maintained debt reduction and fulfilled the State's competition policy commitments.

In short the Bracks Government is of a distinctly different character than its Labor Party predecessors when it comes to fiscal management and ideology.  And the state is better for it.

Will they be able to continue with new Labor polices if re-elected?  In short, probably not.

During its first term, the Bracks Government has experienced a dream run.  It inherited a $1.7 billion budget surplus and a buoyant economy -- thanks in large part to its predecessor.  The economy along with an overheated housing market, a free-spending federal government and high returns on the stock market generated phenomenal State revenue growth.  Over first three years of its term, State revenue grew by 22 per cent or just over 7 per cent per year.

The inherited surplus has now been cut to below $300 million and the revenue flow will surely slow.  The Howard Government will shift its spending priorities away from State grants to things such as defense and homeland security.  The housing bubble will burst.  Consumer spending is already beginning to slow -- as is spending on gaming which has been the largest source of State revenue growth.  And the recent stock market decline has already had a major impact on the State's revenue with earnings down in last year by $1.1 billion and more losses likely to be brought to book this year.

Because of the easy money, the Bracks Government has not been required to focus on value-for-money where it counts the most -- the public sector workforce -- over the first three years of its term, the State's wages bill grew by 27 per cent or by 9 per cent per year.  A further increase of 6 per cent is budgeted for 2002-03, which gauging from the blow-out that is already evident;  this must be treated as an ambitious estimate.

The next Government irrespective of its composition will need to rein in the growth and probably the size of the States's wages bill.  This will be a tough test for a Bracks Government as it will not only require it to dismantle much of its own handy work but require it to take on its largest political constituency -- the public sector unions.

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