Wednesday, March 28, 2012

Queensland election result and fiscal policy

The post-mortem of the state election result has begun in earnest, with many issues already bandied about as factors explaining Queensland Labor's seismic defeat.

Some of the major issues identified in exit polling include the mismanagement of key areas of current state government responsibility, including in health and transport, and strong increases in the cost of living of recent years.

But it should be said that any of these issues could have been diluted, perhaps even substantially, if a general impression of basic incompetence by the previous government was not in existence.

The fact of the matter is that the words ''competence'' and ''Bligh government'' could no longer be strung together, and there was no more fundamental measure of incompetence than the state of the government's own financial books.

The problems of Queensland's public finances were well canvassed during the election campaign — a state budget in the red, a government saddled with over $85 billion in debt and counting, and a Queensland that lost its historical low-taxing position.

In many senses the parlous state of the budgetary books fed into some of the issues seen as decisive during the election campaign.

Rising taxation liabilities over time feed into the cost of living and associated issues, such as housing affordability, while much greater government spending often comes with greater laxity in cost control and an increasing risk of resource misallocation within the public sector.

The sharp deterioration in the Queensland budget from being the best in Australia to the worst was, in large part, the product of deliberate policy strategies pursued by Labor over the best part of twenty years that would have made Fabius Maximus proud.

Beginning with Wayne Goss in his second term, and later taken on by Premiers Beattie and Bligh with some gusto, Labor increased the scale of state government expenditure which eventually exceeded the average levels of provision found in other states.

Accusing previous conservative governments of spending ''neglect'', they repudiated the Bjelke-Petersen legacy of low taxes and extensive private sector services provision that kept the state budget balanced and the economy growing strongly during the 1970s and 1980s.

The magnitude of the spending under Labor was so relentless that, as revenue growth began to wane after Mining Boom Mark I, the previous government lacked the political will, or simply didn't know how, to apply the speed brakes.

During Bligh's brief tenure as state treasurer general government expenditure increased by a staggering 14 per cent in 2006-07, more than double the revenue growth in that year.

The global financial crisis came along shortly thereafter and spending was still growing at about 12 per cent per annum, but revenues just kept ebbing away and a healthy budget surplus turned into the worst budget deficit outcome of all states and territories.

The Bligh government quadrupled the level of public debt over a few short years in order to keep up the expenditure effort, leaving future generations to pick up the tab in an atrophied economy outside of the resources sector.

The greatest challenge for the Newman Liberal National government will be to reverse the fiscal damage wrought by its predecessor.

The announcement of a comprehensive audit of the state's public finances is an eminently sensible one, as it will provide a fresh opportunity to apply a fine toothcomb across the field of expenditure commitments and identify opportunities for real fiscal savings.

The audit committee would do well to revisit the numerous issues left untouched from the 1996 FitzGerald audit, such as the comprehensive application of purchaser-provider arrangements within government.

This would entail the private sector playing a much greater role in providing logistic support to government operations and delivering frontline services to the public, something that could help lift the fiscal burden off taxpayers already struggling with their own everyday bills.

Another report on the state of the Queensland economy and its finances, undertaken by Commerce Queensland in 2006 and which I was fortunate to organise, could also serve as a guide for the new government in its quest to get the budget back on track.

The Commerce Queensland report, among other things, canvassed the widespread privatisation of state assets.

While privatisation would deliver private sector efficiencies and revenues from asset sales could be used to repay public debt, this option is regrettably off the table for now given the former Bligh government's cynical mishandling of this issue during the GFC.

The energy with which the Premier Newman is already applying to his role is admirable, and he will need to muster all of his famed ''Can Do'' spirit to reverse nearly twenty years of fiscal profligacy in Queensland.


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