Bracks' Luck Will Be a Test
Steve Bracks is a lucky politician, but has he worked hard enough to sustain his luck?
Arguable not, and he will be sorely tested if he wins another term on the 30th of November.
When Mr Bracks won the unwinnable election three years ago he inherited a booming economy, a growing population and state finances with little debt, efficient services and a massive $1.7 billion operating surplus.
According to broad indicators, he has not squandered this inheritance. The Bracks administration has restrained the growth of the government sector measured as a share of the State's economy. Debt levels have been cut. Payroll tax rates have been cut. With studious indecision, the Bracks Government has avoided many of the more wasteful infrastructure projects it promoted whilst in Opposition, and they have fulfilled the State's competition policy commitments.
While it is fair to conclude that this is a different and better government than its Labor Party predecessor, there is cause for concern.
The Bracks Government has allowed the public sector wages bill to blow-out. Over its first three years of government, the State's wages bill grew by 27 per cent, or by 9 per cent per year. A further 6 per cent growth is forecast for 2002-03, though judging from the election commitments to date spending will be higher.
The money has been used to fund around 10,000 new positions and large wage increases particular in health, education and police.
The concern is not so much with the additional staff or even with the wage increases. Rather the problem for the longer term lies with the restrictive workplace arrangements. The Government has added a raft of restrictive practices and conditions that will drive future labour costs higher without off-setting productivity gains. For example the wages deal with the nurses sets a fixed ratio of four patients per nurse irrespective of demand. It also restored automatic annual increments to nurses' pay, reversing the previous government's approach of paying according to efficiency. These inflexibilities have contributed to the longer elective surgery waiting lists and the increasing number ambulance forced to by-pass hospitals record under the Bracks Government's watch despite the additional expenditure. The Government's deal with teachers give rise to a similar a set of problems.
The Bracks Government's problem with labour extends to infrastructure. The Government has slowly ramped up its plans for spending on infrastructure, including $3.5 billion in transport strategy, $500 in hospital developments, Commonwealth games venues and a $157 million Synchotron. Sweetheart deals between the Bracks Government and construction unions is set to increase the cost and reduce the viability of these projects. For example, the deal arranged recently for the MCG redevelopment added around $20 millions to the cost of the project. It also resulted in the Commonwealth withdrawing its contribution to the project thereby adding an addition $77 million to the State's cost. If similar deals spread to other State infrastructure projects---as is expected---then the cost to the State budget will be enormous.
To date, the Bracks Government has been able to fund its rising expenditure with an effortless rise in revenue. Over the first three years of its term, State revenue grew by 30 per cent, or 10 per cent per year.
Three factors have driven revenue growth in this period: an overheated housing market, a free-spending federal government and high returns on the stock market. None of these trends are likely to continue into the future. Indeed the gravy train is already stalling.
The housing boom which generated $1.2 billion in excess of forward estimates last year is beginning to slow. The Commonwealth, which has pumped billions into the State coffers in the form of higher first homebuyers grant, national competition policy grants, tax reform compensation grants and additional road funding, is facing a tougher budget climate, no election and other priorities.
The buoyant stock market of the last few years has allowed the government to fund a large proportion of it superannuation and insurance liabilities with minimal draw on tax or grant revenue. This avenue of earnings has already dried-up with a shortfall of $1.1 billion in the State's super scheme recorded last year. More losses are likely to be brought to book this year. The investment losses are likely to spread to WorkCover.
While the Bracks Government has made an artform of 'behavioural taxes', with traffic fines currently running at about $35 million per month with double digit growth, there is a limit to people's masochism.
Bracks has had a dream run to date, requiring little real effort to appear to be both fiscally responsible and extremely generous. He will have to make his own luck if he wins another term, by driving value for money in the public services and in government contracts. To date there is no indication he has what it takes.