Ten years ago most members of the state Labor caucus would have had mixed reactions to their come-from-behind election win under Steve Bracks.
The champagne corks were no doubt popping in celebration after years in the political wilderness. At the same time many in the new government would have breathed a huge sigh of relief knowing they pulled off victory despite their much-pilloried financial mismanagement record.
Since stumbling back into office in 1999, Labor has had 10 years to clean the stain of the Cain-Kirner years and present themselves as reliable stewards of Victoria's public finances. With another state election scheduled about this time next year, it is appropriate to ask how Labor has performed over the past decade.
One of the most important benchmarks of financial prudence is the state of the net operating surplus for the general government sector, covering the transactions of core agencies and departments.
The Government's own budget papers show that state treasurers Steve Bracks, John Brumby and John Lenders have presided over an eroding accrual budget surplus in trend terms since 2000-01, the first full fiscal year of the state Labor Government.
In 2000-01, the budget surplus stood at $1.2 billion, a rich fiscal inheritance left behind by the Kennett government. By 2008-09, the surplus stood at a relative pittance of $243 million. The revised expected outcome for this financial year is not much better.
Labor's implicit acknowledgement that the budget has melted away on its watch is reflected in recent changes in fiscal policy.
In the 2008-09 budget, the Government announced it would set an operating surplus target of at least 1 per cent of revenue. In the following budget, it announced a diluted surplus target of at least $100 million.
A glaring feature of the expected budget surplus for 2009-10 is that it has been bankrolled by grants from the Rudd Government, most likely in the form of borrowed money. It is expected that grant funding will grow by 17 per cent this financial year. If it had grown by 10 per cent instead, as was the case in 2008-09, the budget would be in deficit by about $1 billion.
A characteristic feature of this Government's record is the extent to which it has received a huge influx of receipts across a broad range of revenue instruments.
It snared $4.3 billion more from individuals and businesses in 2008-09 than in 2000-01. This represents a 50 per cent increase in revenue from this source alone.
A big source of tax growth has been property taxes, as rising residential and commercial property prices have given the State Government a lucrative revenue stream. In particular, land tax jumped by a staggering 140 per cent over the period, from $516 million to $1.2 billion.
As many small and medium businesses will attest, the often pernicious increases in land tax bills have affected incentives to grow, invest and employ people.
The Victorian Government over the past decade has also gouged holders of general and life insurance policies, as insurance tax revenues grew by 91 per cent, while Victoria maintains the invidious status as the highest stamp duty state in the Commonwealth.
The Government has also benefited from money funnelled from a GST and specific purpose grants pipeline stretching from Canberra to Spring Street. The amount of grants received by the state has grown from about $10.4 billion in 2000-01 to about $18.8 billion in 2008-09, a whopping increase of 81 per cent.
Last financial year, Federal Government grants accounted for 48 per cent of Victorian general government sector revenue. With Kevin Rudd and Wayne Swan doling out even more money to prop up state budgets, it is expected that grants will account for just over 51 per cent of the state's available revenue. For Victoria, the new-found dependence on the feds to effectively give the Brumby Government a veneer of a budget surplus is a sign of financial and economic weakness.
To understand how a gradual budget surplus meltdown squares with record revenues, it is necessary to examine the spending record of Labor.
General government operating expenses rose from $22.5 billion in 2000-01 to $38.9 billion; an increase of $16.4 billion, or 73 per cent.
While the overall increase in spending has been significant, it is not sufficient to explain changes in the direction of the budget bottom line. Therefore, a comparison of growth of expenditure and revenue on an annualised basis is required.
On the basis of the Government's own estimates, annual spending growth exceeded the growth in revenues in five out of eight years, including in 2008-09 when expenditure grew by 9 per cent compared with a strong 6 per cent increase in revenue.
The state budget papers reveal that spending on employee wages and salaries has grown at a faster rate than overall general government expenditure since 2000-01. My recent study has also shown that Victoria has recorded the fastest increase in total numbers of public servants of any state since 2000; the core Victorian Public Service bureaucracy alone has grown by 60,000 people.
And, in what must be of major concern to Victorians who lived through the Cain-Kirner years, the Brumby Government is projecting a big spike in public sector indebtedness over the next four years.
For the general government sector, net debt will rise from $5 billion in 2009 to a projected $16 billion by 2013, an increase of 202 per cent. By contrast, state general government net debt was just $2 billion in 2001.
For the non-financial public sector, including government trading enterprises, net debt is expected to balloon to a huge $31.3 billion by the end of the forward estimates.
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