Opinion & Commentary
Why we're in such a sorry state
The political scrap over the Gillard Government's flood levy is capturing the headlines, but events far from Canberra are a reminder that all is not well with state budgets either.
Labor governments in South Australia and Tasmania have set their sights on cutting spending and public service numbers in the face of opposition from traditional supporters, while in Queensland the Bligh Government struggles to rejig its Budget to make room for flood and cyclone recovery costs.
A comparison of the six states' performances in fiscal management sheds light on why some states are under more pressure than others to change their spending, taxing and borrowing habits. These comparisons are based on net debt burdens, other financial liabilities such as unfunded public service superannuation, government spending and employment per capita, and tax burdens on business. Some of the findings are surprising.
While no state has much to crow about, Victoria and Western Australia come out best overall. Queensland and South Australia sit together at the bottom of the rankings. For Queensland this represents a shocking come-down from the time, not so long ago, when it could boast of substantially negative net debt and of being the ``low tax state''. It now has positive net debt like all the other states and an average tax burden.
The three-year trend figures reveal that all states, except Tasmania, have deteriorated since 2006-07. This is perhaps not surprising in that they were hit by the fallout from the global financial crisis in the past three years, but their actions have also served to make their financial standing worse.
All states have recorded large increases in government spending and public-sector employment. Western Australia and South Australia increased their expenses by 17 per cent in three years and Victoria by 13 per cent, even after allowing for inflation and population growth. The six states combined managed to add 125,000 to their payrolls in three years - a rate of increase that outstrips population and private-sector job growth.
New South Wales and Queensland have increased more taxes than they have reduced.
Queensland, despite its tax hikes, has recorded the biggest increases in debt and other financial liabilities, which helps to explain why it is the only state to have lost the prized triple-A credit rating during the global crisis.
Queensland's fiscal predicament makes the cost of floods and cyclones more difficult for the Bligh Government to handle than if its budget management had prudently left more in reserve for contingencies such as these.
Premier Anna Bligh and Treasurer Andrew Fraser should thank their lucky stars for the arrangement that leaves the Commonwealth shouldering the lion's share of natural disaster costs.
While Queensland stands out for its poor report card, other states have no grounds for complacency. If the trends of the past three years continue unchecked, more states will join Queensland in the fiscal sin bin. Key to avoiding that fate is a more disciplined approach to spending.
Robert Carling is a senior fellow at The Centre for Independent Studies.
