Losers need to refocus
The Liberals face a formidable set of hurdles to win any state government in the foreseeable future. This is possible only if they go back to basics and set out to win the policy agenda.
NSW Liberal Nick Greiner did it from deep opposition in the late 1980s. Victorian Liberal Jeff Kennett did it in the early '90s, albeit with the help of Joan Kirner. And federally the Howard Government won an election in 1998 that focused tax reform on the GST.
The flaws in the approach of the ALP state governments not only exist but will grow more severe in the years ahead. Exposing these and developing alternatives is the Liberals' opportunity - and the purpose of an opposition. Unfortunately, the Liberals appear to be adopting a low-profile approach to the big issues, trying to outspend and out-regulate the ALP.
There is no doubt that the GST combined with a reform-charged economy has made oppositions' tasks difficult. Since the introduction of the GST in July 2000 the state and territories have received a tax-grant windfall of $50 billion. That is, the GST and their own taxes have generated $50 billion or 12.5 per cent more revenue than predicted back in 2000-01. On top of that, most governments entered the century in good fiscal shape with little debt, budget surpluses, few loss-making enterprises and slimmer public services. This has provided state governments with the capacity to spend big and be fiscally responsible at the same time.
And spend they have. The states have used the windfall gain from commonwealth tax generosity, overwhelmingly on wages and other recurrent programs.
This has allowed them to soothe the concerns of virtually every interest group and put more resources into health, education and police. It also allowed them to undertake record levels of capital spending funding without going heavily into debt.
In situations such as this, it is hard for an under-resourced opposition to make a mark, to be heard and to be taken seriously. This applies at the federal level as much as the state. The Howard Government has gone on its own spree, which has helped keep the ALP in opposition federally.
However, the task of demonstrating fiscally deficient approaches is far from impossible and will get easier. The easy money of the past five years has made for sloppy, uncreative government. Moreover, while the leadership of all current ALP governments is conservative and mainstream, the left wing of the party still holds sway in a number of policy areas and is being given a great deal of head. The union movement, which is rapidly becoming dominated by public-sector unions, holds too much sway over ALP governments.
Twenty years ago, Greiner began developing the arguments for and approaches to putting state business enterprises on more competitive, transparent and neutral footing. In so doing he attacked what was then a key edifice of government - the big-spending, all-powerful government business enterprises. He started this task from opposition. It helped him win government. Of course, the idea spread and changed the government in every state for the better.
A similar task now needs to be developed and articulated for schools and hospitals. The focus needs to be on empowering consumers with choice, information and funding. This is not as radical as it sounds. The commonwealth government has been moving along this path for decades with funding for private schools, private health providers and, more recently, private health insurances, and it has proven to be popular.
The states have been reluctant partners in this reform. They have tended to concentrate on empowering the state's providers - health department, school bureaucracy, nurses and teachers unions - rather than patients, parents or their agents. Their reluctance has led to lower quality, higher cost and less suitable services.
The starting point needs to be a debate on concepts. The debate on fiscal management is not over. The fact is that the lion's share of the tax-grant windfall received by the states to date was a one-off. It was generated by the consumption and housing booms. As these booms fade, as they already have in NSW, revenue growth will slow, exposing unsustainable commitments, particularly on staffing.
Most state governments have made the classic error of using temporary funds to fund long-term commitments. Over the past five years staffing levels have increased by 12 per cent and the wages bill by a massive 50 per cent across the state sector. On top of this most states have locked in increases in wages. The dilemma of growing budget deficits and excessive staffing levels confronting Morris Iemma in NSW is likely to spread to other states. This should be natural ground for the Liberal Party to occupy.
There is also a need to focus on regulation reform. The fact is that the states are the main generators of red tape. During the past decade the body of state laws and regulations has grown more rapidly than in the commonwealth and become more intrusive and expensive.
The agenda for Liberal revival at the state level is available. It needs leadership and long-term commitment.