STONE the crows, Hobart has become the Athens of the south.
But it’s economics not architecture that unites them. On Thursday Lara Giddings (oh come on, of course you have heard of her, she’s the premier) brought down a deficit budget of $283 million.[i]
In the great scheme of things this is no big deal. The Tasmanian budget is $4.6bn, (compared to Brisbane City Council’s $1.9bn) with net debt of just $134 million.[ii] And optimists will take heart, perhaps even believe, her projected surplus of $500 million by 2016.
But what is alarming is the way Ms Giddings has lost her nerve – and abandoned the spirit of last year’s budget, which promised to cut $1.4bn in spending, by reducing government services and sacking public servants.[iii] Instead of real cuts to the government pay roll this year there is “vacancy control,” which means the public sector has shrunk by 1100, just 65 per cent of the target. [iv]
And what is scary is the justification for the deficit
“We could have chosen to cut even harder so we could claim that we had avoided Net Debt altogether. But to do so would have put even more pressure on the services Tasmanians need and we were not prepared to do that. By the same token, we could have gone even further into debt in order to protect services in the short term, but that would have meant even harsher cuts in the future. I believe we have the balance about right.”
She’s wrong, because the budget is not in balance – it is in deficit and the Premier’s plea for understanding is irrelevant. For all her arguments about assisting the poor the Crows only counted $120 million or so in new (albeit inadequately explained) welfare measures.
In essence, Tasmania is in strife for one of the reasons Greece is – the state spends too much on an inefficient public sector; it indulges rent seekers and provides services it cannot afford.
The state spends over half its budgets on public service wages and while there are a lot of government workers they are not especially effective. Service delivery costs account for 20 per cent of state gross product, nearly double the Victorian figure. And Tasmanians are not all that energetic – welfare is the main source of income for a third of them.[v]
As the Commonwealth Grants Commission makes clear, the state is a basket case of its own making.
“it has below average revenue capacity for the major taxes (such as payroll tax, conveyance duty and mining revenue) and above average expenses in providing the major services (including schools, health, welfare and housing). The high service delivery costs reflect the State”s above average share of people in areas with low socio-economic status, older people and government school students, and below average non-State provision of community health services. It also incurs diseconomies of small scale in administration, but has below average wage levels.[vi]
Not to worry, because Canberra is always good for (quite a) few quid. Under the Grants Commission formula the state receives $1.59 for every $1 in GST sent across Bass Strait. [vii]
Which means there is not much incentive for Tasmania to change and plenty of reasons for it to get very cross if anybody suggests it does.
As Premier Giddings put it when attacking Tony Abbott for suggesting that more GST revenue should return to the states where it was created; “he wants fairness but how can it be fairer to allow mineral-rich states to hoard the nation”s wealth, compared to the current method, which assures a fair-go for all?”[viii]
Her’s, as Colin Barnett points out is the cry of the mendicant, in this cloaked in deep green. “Tasmania has become Australia”s national park. If they continue to reject any sort of development, well what right is there to simply take some of the spoils of the hard work in other states?”[ix]
This is more than a little unfair. Tasmania is burdened with a political culture which empowers independents and environmentalists to knock off development.
But it is the ease with which Premier Giddings abandoned last week the late Jim Bacon’s determination to keep the state in surplus that says it all – cuts were unpopular with the electorate and so she accepted a deficit.[x]
Remind you of anybody, anywhere? How about the Greeks, in a mess of their own making, but adamant everybody else should bail them out.
According to Alexis Tsipras, leader of Syriza, which won 22 per cent of the vote in last week’s election and may form a government after next month’s, if Europe cuts off funding Greece could repudiate its debts. “By not paying its debts the country will have enough cash to pay its workers and retirees.”[xi]
Spot the flaws in that argument. For a start repudiating debt never solves anything (seen the state of Argentina?). And the reason why Greece got into debt in the first place was because it had a welfare system that it could not sustain on the revenue its citizens were willing to provide.
Yes Tasmania is different. Yes the Crows know the CGC is supposed to redistribute funds to ensure comparable services across states, according to horizontal fiscal equalisation.[xii] Yes tax evasion isn’t endemic in Bob Brown land.
Greece, has a ridiculously rorted pension welfare system it cannot afford.[xiii] And it has privileged some workers over others. Until last August there were 140 closed-shop Greek occupations, designed to reward practitioners at the expense of everybody else.[xiv]
Thanks to a tightly targeted welfare system and the national competition reforms of the ‘90s neither applies in Tasmania.
But the core of the Athens-Hobart comparison applies. Premier Giddings has borrowed money to fund recurrent expenditure in the hope the economy will improve. And if they don’t what’s the betting she will borrow some more But only to protect under-privileged Tasmanians, of course.
Want to know what happens when people who argue economics is optional that welfare ‘decency’ trumps discipline? Have a look at where Athens has ended up and where Hobart is starting.
[i] Lara Giddings, “Strong decisions, better future: 2012-2013 budget speech,” May 17 2012 @ www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/2012-13-Budget-Speech.pdf/$file/2012-13-Budget-Speech.pdf recovered on May 19
[ii] Parliament of Tasmania, “Budget Paper Number One, The Budget 2012-13” 11, 13, @ http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/2012-13-Budget-BP1.pdf/$file/2012-13-Budget-BP1.pdf recovered on May 17, Brisbane City Council, “Annual Plan and Budget, 2011-12” June 8 2011 10 @ http://www.brisbane.qld.gov.au/2010 Library/2009 PDF and Docs/1.About Council/1.10 News and publications/Budget 2011-12/Budget_2011-12_annual_plan_and_full_document.pdf recovered on May 19
[iii] Matthew Denholm, “Tasmanian Budget: wholesale slashing to avert debt crisis,” The Australian, June 17 2011
[iv] Damien Larkins, “Budget with ‘heart’ to hit hip pockets,” ABC Hobart May 18 @ www.abc.net.au/local/stories/2012/05/17/3505161.htm recovered on May 19
[v] Matthew Denholm, “Clean, green and leaning on the mainland,” The Australian, April 9 2011
[vi] Commonwealth Grants Commission, “2011 Update report,” www.cgc.gov.au/publications2/publications/2011_update/2011Update/contents/executive_summary/Tasmania recovered on May 17
[vii] David Killick, “Critical test for state budget,” The Mercury, February 22
[viii] Lara Giddings and Julie Collins, “Abbott must clarify stance on GST,” May 7y @ www.premier.tas.gov.au/media_room/media_releases/abbott_must_clarify_stance_on_gst recovered on May 17
[ix] Sue Dunlevy, “ ‘Beggar’ state drains GST,” The Australian, April 4 2011
[x] Matthew Denholm, “Lara Giddings has blinked but she hasn’t capitulated,” The Australian, May 18
[xi] James Angelos and Alkman Granitsas, “ ‘Cut us off and we’ll tear up debt deal’ ” The Australian, May 19
[xiii] Angeliki Koutantou and Harry Papchistou, “Greece pulls the plug on pensions for the dead,” Chicago Tribune, April 25
[xiv] Greece’s economy: keep calm and carry on,” The Economist, August 13