Victoria spending its way into backwater

Melbourne may well be a more liveable city than Sydney, but in most respects Victoria is decidedly disadvantaged in its rivalry with New South Wales.

In spite of this, Victoria's average levels of output and living standards exceeded those of NSW in the years prior to 2006.

For most of the period 1992-2006 the average output per Victorian, in real terms, was 15 per cent above that of NSW.

Doubtless much of this was due to the rigorous reforms and privatisations that Jeff Kennett initiated between 1992 and 1999, but some of the credit can also be claimed by the much-maligned Kirner government.

Prior to 1992 Joan Kirner's government had already started fat-cutting exercises in the public services.

At the same time Kennett was ejected from office, things started going pear-shaped for Victoria.

The lead over NSW in income per head gradually disappeared until, by 2007, perhaps for the first time in living memory, NSW output per head overtook that of Victoria.

Relative performance of states is a reflection of their basic endowments and the efficiency of their governments.

The people of NSW had more than their fair share of poor government under a weak-kneed Carr government that grovelled to interest groups, especially green activists and the unions.

But NSW has a greater resource-endowment than Victoria.

Though NSW lacks the mineral base of Western Australia and Queensland, it shares some of those states' good fortune in that regard.

Furthermore, it has developed the infrastructure to support the booming financial sector, and it has a superb natural port serving a vast interior.

These attributes provide buffers that will forgive poor efficiency of government service delivery.

Victoria has not been helping itself to overcome its natural disadvantages.

Last year economist Henry Ergas examined relative state government performances.

He found that on some measures, like education, Victoria has performed better than NSW.

Other measures, like the productivity of the health service and peak travel speeds, had shown deterioration in both states.

The bottomline of the Ergas analysis was that Victoria and Queensland were the worst performers among the states.

They tied for the dubious honour of logging the fastest increases in government spending between 1999 and 2006.

In terms of government spending restraint, WA has performed best among the states.  This has enhanced the strength of WA's mining boom.  That state's production per head in 2007 was 40 per cent above that of NSW and Victoria.

The Kennett administration, privatisation and careful economic management brought Victoria a government efficiency dividend.

The state needed this because its relative lack of natural wealth means the government has to spend more carefully.  The present government forgot this and has frittered away the gains patiently won by the Kennett reforms, with little to show for the increased expenditure.

For Victoria the penalty for relaxing is to drift towards the backwater that John Brumby rather unkindly depicted Adelaide as occupying.

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