The two state budgets yesterday provide further incentives for families to pull up stumps in NSW and go north to warm, welcoming and solvent Queensland.
This is not just an issue about the attractiveness of Queensland. It is an outcome of the mess left by Bob Carr and the inability of his successors to fix it.
Ever since Morris Iemma drew the short straw and become NSW Premier, he has tried to understand the financial wreckage he inherited.
What he has learned is that the problem lies in large part with systemic policy failure in government. As the NSW government audit report released this year made clear, the state's fiscal problem arose from its failure to control expenditure, in particular public sector wages.
Each year, as the government was showered with windfall revenue from the housing and consumption booms, it allowed expenditure to blow out. Each year it promised to hold wage increases to just above inflation rate, but allowed them to grow at more than double that rate. It did nothing to improve the efficiency of service delivery.
On infrastructure, it accepted the public private partnership elixir offered by the banking millionaires factories and little constructive happened. In short, apart from the thousands of extra well-paid public servants, NSW has little to show for its $20 billion revenue windfall.
Today's budget was Iemma's big test. He needed to show not only that he understood the cause of his state's troubles, but that he had a strategy to deal with it. He and Treasurer Michael Costa have failed.
While the budget gets the diagnosis right, it provides no creditable cure. It recognises that the problem lies in controlling wages and costs, and simply promises to do so in the future. It provides no reform agenda. It provides no changes to wage-setting arrangements. It promises no forced redundancies and no changes to front line services. In short, it simply repeats the promises of the past.
So the budget's forecast of a one-off operating deficit of $700 million next year followed by improved surpluses is simply not credible.
The budget does commit to a sizeable increase in infrastructure spending. However, most of this will be funded by debt and most will be used for non-commercial purposes. Moreover, the infrastructure spending has all the hallmarks of a pre-election spending splurge. It is spread widely, presented with scant details and with no analysis.
In contrast, the Queensland budget highlights once again the fiscal strength and attractiveness of that state. Treasurer Anna Bligh announced another large budget surplus for 2005-06 of $2.8 billion, more than triple the original forecast. The Queensland government estimates a sharp reduction in the budget surplus in future years. Judging from past performances, this is likely to be a pessimistic view, in sharp contrast to the unwarranted optimism of the NSW budget projections.
The Queensland budget also pledges increases in infrastructure spending and a return to debt financing for budget sector infrastructure. However, in comparison with its southern neighbour, Queensland allocates a greater share of the infrastructure spend to commercial assets. It also commits to needed but controversial projects such as new dams, base-load electricity generating plants and new ports. All of these things the NSW government has avoided. Moreover, the level of borrowing by Queensland is smaller in absolute and relative terms than in NSW.
Contrary to the claims of southern states, Queensland's fiscal strength is not due primarily to subsidies from other states. The Beattie government inherited the best run and the most fiscally sound state government in the country. It had low taxes, low-cost services, no debt and huge cash surpluses. Its government, under both Labor and the coalition has always been overtly pro-growth and pro-business.
Peter Beattie has consumed some but not all of his inheritance. Over the past five years his government has allowed spending to grow at a more rapid rate than any other state and this budget continues the trend; spending on public sector wages is to grow by over 10 per cent. Despite this, Queensland retains it fiscal advantage. Moreover, some of the additional spending by Queensland in recent years has been needed. It has historically paid lower wages and had much lower staffing levels than other states. As the public sector job market became more national, it has been forced to pay competitive wages and working conditions. Also in contrast to NSW, Qld has a rapidly growing population, particular young families, with growing demand for education and health services.
Based on what happened yesterday, more and more of those services are going to be expended on Queensland residents who once lived in NSW.
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