Image for THE BUDGET: Ignore the rhetoric ... is Giddings up to it?

As any psychology student will attest, the best predictor of future behaviour is past behaviour.  So when Treasurer Giddings fronts the press to deliver her first State Budget tomorrow, journalists would be well-advised to ignore her rhetoric about fiscal restraint and Labor’s economic management, and instead concentrate on the facts.

And the facts, which are spelled out in the Budget papers each year, make scary reading.

I suspect to many Labor parliamentarians, restraint refers to some sort of raunchy marital aid.  In fact if the last decade is any guide, restraint may be a word entirely absent from the Labor lexicon.

Over that period, Government outgoings have risen (in approximate terms) from $2 billion to $5 billion.  Unsurprisingly, the growth in spending has matched revenue.  Thanks to a range of factors, actual receipts have outpaced Treasury estimates nearly every year since Labor came to power, particularly since John Howard blessed Australian with a GST.

Governments in general, not just Tasmania’s current crop, tend to be good at two things;  taking credit where credit may or may not be due, and allocating blame.  On the first point, any positive economic news since around 2002 has been quickly reinforced by a Government media release, claiming the improving circumstances were thanks to responsible economic management.
As recently as last year, the former Treasurer argued Tasmania had skirted the impact of the GFC thanks to, you guessed it, responsible economic management.

The facts tell a different story.  There’s nothing particularly responsible about spending every cent of income year after year, particularly when that income is rising sharply.

GST receipts, during the pre-GFC era, routinely outstripped State Treasury’s best estimates.  Added to that, windfall tax receipts from a jump in property prices and special dividends syphoned from various Government Business Enterprises created an environment where lax fiscal discipline went unrecognised and unpunished.

Only three years ago, when the spending juggernaut was out of control, did things begin to unravel.

Having long since ditched plans to build a billion dollar hospital out of recurrent revenue, Tasmania started dipping into savings to pay the bills.  Any slack in the Budget is gone.  Retail spending, a key driver of GST revenue is on the slide.  And even Tasmania’s proportion of that revenue is under threat, with more affluent States correctly nominating us as a drain on the public purse.

So this is where the blame game begins.  When it became apparent former Treasurer Aird had been asleep at the wheel for some years, the spin doctors decided it was time to bring global issues into the equation.  Our Budget problems were nothing to do with Aird’s narcolepsy, the Government media unit spruiked, It was all due to the GFC.

The GFC will be a recurring theme in tomorrow’s Budget papers.  Declining revenues, a slump in tourism, opposition to football and possibly even Brenton Best’s wardrobe sense will all find a scapegoat in the GFC.  Labor’s traditional scapegoat will escape unharmed this year, but only as three of them have positions in Giddings’ Cabinet.

As for the numbers, I expect headline revenue of a whisker over $5 billion, which is a little inflated due to Commonwealth funding for a new hospital.  Expenditure will be predicted at around $5.4 billion, implying a fiscal deficit of around $400 million.  I suspect in a year, the true position will be worse.  Much, much worse.  And there will be no easy fix, and no handouts from Federal funds.  Ten years of Labor waste will be exposed.

On a number of occasions in the past decade, Labor has been in a position to secure the State’s financial position.  Five years ago, with cash-fuelled venture capitalists paying record prices for energy utilities, our electricity retailer could have been unloaded for $1billion plus.  Any sale could have easily included covenants restricting the sort of price hikes to which we are now being punished with.  Hydro and Transend, even allowing for the damage inflicted by crippling losses from dodgy energy trading, were highly saleable assets.

But then, as now, the Government remains hobbled by two pieces of ideological nonsense, in economic terms at least; that the State should remain net debt free, and that the Hydro must not be sold.

It’s a sad state of affairs when dogma without any economic, or indeed rational foundation can not only cripple an economy, but saddle future generations with unneccesary debt.  Even assuming future Budgets aren’t shortsighted enough to push out repayment of our unfunded superannuation liabilites any further, the fact remains people who haven’t even been born yet will be paying off that debt well into their working years.

To be fair, Lara Giddings had limited options this year.  Only two really - to boost income somehow, or cut costs.  Increasing revenue is a tough ask in any Budget, particularly when business is already shouldering a hefty tax burden from a range of levies.  Asking the gaming or mining industries to make a bigger contribution, well that would be political suicide.  So that leaves cutting costs, with the biggest cost being the salaries of the public sector.

Giddings will probably say around 400 jobs must go in the coming year.  That won’t be enough.

Some of the blame for the excesses of the public sector must lie with Tasmanians themselves.  Our communities demand massive duplication of services across a region scarcely bigger than Metropolitan Melbourne.  As an example, Service Tasmania now have a branch in the Northern Midlands town of Longford - an 18 minute drive from Launceston’s CBD.  That quaint parochialism extends to the health network; policing, indeed across the range of Government services.  And it comes at a cost.  A bloody big one.

Can we afford it?  Can Tasmania afford the plethora of feel-good, but difficult to evaluate programs like Women Tasmania, Sport & Recreation Tasmania, Tasmania Together?  Not to mention the more obvious cases of excess like the Hawthorn football sponsorship ($50 per spectator per game), the extravagence of the Fox Task Force, or the nonsense of the entire Department of Economic Development?

And at the risk of incurring the wrath of the formidable Tom Lynch, I’ll make the bold claim that the world wouldn’t end if our civil servants were asked to be a little more productive.  Modest productivity gains should be a prerequisite for any salary increase negotiations, for the life of the forward estimates at least.

Finally, the role of our Government Business Enterprises can’t go unmentioned.  All of them, possibly with the exception of TT-Line which was a basket case from inception, were created with the eventual aim of providing a commercial return to the ultimate owners.  All have failed.

It is an indictment of current and past Governments that this state of affairs exists.  It hasn’t helped that Boards of all are stacked with Labor stalwarts and individuals with little or no business acumen.  A root and branch cleanup of all is necessary if they are ever to pay dividends, in both financial and metaphorical senses. 

For years, Aurora, Forestry Tasmania and the rest of them have behaved in a way that could be described as recalcitrant, but would be better classed as feral.  Freed from the fettles of corporate regulation or shareholder scrutiny, all have traded, bartered, manipulated and conned various Governments into accepting their case that third, or fourth best is good enough.  If properly managed, we should be receiving hundreds of millions of dollars each year from them.  We aren’t.

GBE Boards, in fact the Boards of all organisations on the public payroll, should be staffed by directors appropriate for the role.  Not faithfull Labor members.  Not thuggish unionists.  Certainly not as a reward for 30 years of mediocre service in some obscure Government job. 

Accepting reality and reforming Tasmania’s finances is a big job for a new Treasurer.  I wonder if Giddings is up to it?