The 2006-07 state budget is a typical John Brumby budget. It is best described as a budget that lives well within very ample financial means.
It positions the Government well for the state election in November, busting the ghost of "the Guilty Party" while pleasing most interest groups.
However, it also retains the flaws of past Brumby budgets, in that it fails to act, as opposed to talk about, for the long term.
While the budget has a lot to say about the need for reform, it does little -- indeed on tax it goes backwards. Eventually this failure will catch up with Labor and the rest of Victoria.
The budget contains few surprises. Most initiatives were leaked in detail before the budget or are repeats from previous budgets or policy statements. While it gives all major interest groups, including the business lobby, enough to keep them happy, it keeps spending growth to a modest 4.5 per cent and the current account in balance.
Although the budget includes increased debt, the increase is modest, debt levels remain low and the debt is being used to fund new infrastructure.
Given that it is a pre-election budget, it is a very modest affair -- something for which taxpayers should be grateful.
The key to this and past Brumby budgets is the receipt of very substantial revenue, and this happened again this year.
Tax revenue, despite the much-heralded nip-and-tuck job done to land tax in last year's budget, came in 4.5 per cent over budget.
This, combined with above-budgeted GST receipts and fee income, gave the Government an extra $570 million, which enabled it to put in place a number of pre-election initiatives and end the year with a pre-election kitty.
Once gain the main source of revenue growth was stamp duty on residential home transfers, which grew by a massive 19 per cent, or $385 million, during the year and generated total revenue of $2.5 billion -- making it the Government's second-largest tax source after payroll tax.
The budget announced a number of initiatives to please business. These include further adjustments to the land tax system; cuts to the top payroll tax rate from 5.25 per cent to 5 per cent; a slight reduction in WorkCover rates; initiatives to force ministers to reduce red tape, and infrastructure and training projects.
In the context of a tight pre-election budget, these initiatives are substantial and they, along with the commitment to sound fiscal policy, illustrate the extent to which the Bracks Labor Government has embraced the need for responsibility.
The concern with the budget must be with its lack of long-term focus, specifically on its failure to initiate long-term, politically difficult but necessary reforms focused on driving efficiency in service delivery.
The budget does have a lot to say about the challenges facing the state and about the need for reform.
It allocates more money for more highly paid staff, more equipment and improved infrastructure.
While there is a need to augment the capacity of the health, education and training systems, there is also a need to do things differently in search of value from money and, ultimately, better outcomes. This budget, like past Brumby budgets, avoids doing so.
Eventually, when the housing boom wanes and revenue becomes tight, the failure to push value for money in the delivery of services will come back to haunt the state.
The short-sightedness of the state budget does not only lie in service delivery, but also tax.
This budget continues the policy of narrowing the state's tax base. It provides further cuts to its only two potentially broad-based taxes -- land tax and payroll tax -- while keeping in place a range of narrow, volatile and highly destructive taxes, such as stamp duty on conveyancing. This duty not only inhibits the movement of people and assets, but pushes up household debt.
It also locks people out of the housing market.
What is needed is wholesale reform of the state tax system, with a much greater reliance on payroll tax and land tax, albeit at much lower rates, and broader bases and less reliance on stamp duties. While it is not surprising the Government did not embark on this reform in a pre-election budget, the budget moves in the wrong direction.
Another systemic weakness of the Bracks Government and this budget is its reliance on bureaucratic solutions. The budget provides a long list of initiatives -- most of which provide expensive bureaucratic solutions rather than rely on personal choice and markets.
Even red tape initiatives will cost $42 million in more bureaucratic oversight and incentives to bureaucrats to act in our interest. This is why the bureaucracy has increased in size by 29 per cent under the Bracks Government. The 2006 budget continues this growth.
The budget also continues the Bracks Government strategy of living within its ample means and positions it well for the election. It also indicates that the real test for Labor lies ahead.
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