Cashed-up state ready to spend up big
Duncan Hughes
24 May 2006
Australian Financial Review
Victorian Treasurer John Brumby's sixth budget is expected to feature record levels of spending on infrastructure and a new agenda for cutting red tape, setting by example the state's case for a third wave of national reform.
The cashed-up state, whose surplus for the first half of the financial year was 2 1/2 times estimates at $811 million, will be boosted by an expected $600 million windfall from the proceeds of the sale of Snowy Hydro.
Mr Brumby, who will deliver the budget next Tuesday, will unveil billion-dollar plus outlays for capital works, the largest ever spending on education and specific initiatives for selected industries, such as tourism.
"Our initiative on reducing red tape will unambiguously represent national leadership and will put in place a framework the other states and the commonwealth will follow," he told The Australian Financial Review in an interview.
It is expected to be modelled on best European practice, particularly the UK's "regulation taskforce", by setting annual targets for reducing bureaucracy.
Mr Brumby's budget, to be delivered six months before the November 25 election, is expected to underwrite the new national reform agenda embracing long-neglected human services such as
health and education, infrastructure, regulation and red tape. (note lack of tax cuts).
"On the capital side it will be the biggest, by a long way . . . it will be a very big infrastructure budget. We will be paying for it largely out of operating surpluses," he said.
"We are also increasing our call on debt. In the first few years after being elected in 1999 we paid down debt. It was about 3 per cent of GDP [gross domestic product] when elected. We have paid it down to 1 per cent and in the forward estimates we will increase it to something like 2 per cent."
The budget papers are also expected to announce a renewed approach to federal-state fiscal relations with the unveiling of new principles for reform.
"This is a matter states never agree on, but it is an issue that Australia must continue to address if we are fully committed to a generally efficient national economy," he said.
But Mr Brumby would not comment on demands by the business community for cuts to payroll tax or calls for reduced stamp duty and land tax.
The state's manufacturing-based economy has been hit by the strong dollar and intense competition from China, Russia and Brazil while the resource-rich states have driven up demand for skills and labour.
According to Melbourne Institute director John Freebairn, the three issues needing to be addressed by the budget are "productivity, productivity and productivity".
Mr Brumby said: "We have been doing pretty well in that area. The secrets are skills, matching that with business investment, with capital works and putting those together and linking it with reform initiatives such as education and regulation."
Victorian shadow treasurer Robert Clark has estimated that the budget surplus will exceed $2 billion, swelled by a strong economy, high employment rates and a buoyant property market. The Bracks government has already announced capital spending of about $2.5 billion for the year, with major statements on transport, a new hospital and a transport ticketing system.
Mr Brumby said: "This year will be by far the largest in nominal terms and certainly the largest in real terms for some decades."
The $600 million windfall from the Snowy has been earmarked by Mr Brumby for "the largest ever spend on education".
ANZ chief economist Saul Eslake said a major challenge for the state would be "retaining its relevancy" against the booming north-west mineral states.
Mr Brumby said that while the state was holding its own in terms of output there were still ongoing and fundamental shifts. "In Victoria the key is to remain an agile, dynamic and efficient economy. So long as we do that we will continue to grow at - or above - national rates."
WHAT HE SAID
On spending:
Capital works is still the single biggest issue for Australia and biggest issue for Victoria.
On his future:
I hope to deliver some excellent budgets. I have contested preselection and was not challenged as the candidate for Broadmeadows. Serving a full term is my intention. I have had a few suggestions that federal politics is a good place to be, but I've done that and there was too much travel.
On the resources boom:
Research done for Treasury shows the impact of the resources boom and the impact of trade lifting the dollar higher has reduced Victoria's gross domestic product by half a percentage point per annum. It has penalised us.
On Canberra:
The major deficiency in the federal budget was no real plan for Australia going forward on the infrastructure side; nothing substantial on the skills side. The federal government is not doing enough about it.
On red tape:
Our initiative will unambiguously represent national leadership and will put in place a framework the other states and the commonwealth will follow.
On borrowing:
We are increasing our call on debt. In the first few years we paid debt down. It was about 3 per cent of GDP when elected in 1999. We have paid it down to about 1 per cent and in the forward estimates we will increase to something over 2 per cent.
On growth:
Treasury analysis shows the state's financial and knowledge base have just leaped ahead. We have had extraordinarily strong growth. To me that is a sign we are moving up the value curve.
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Oh how nice it would be if this 'regulation taskforce' had a good hard look at the shithouse situation that transport finds itself in, a
network rail-like corporation is what this state is crying out for.
