If you’ve ever got a dodgy proposition you want spruiked, see if you can get NSW Treasurer Dominic Perrottet to do it.
His budget offers the most optimistic view of the next four years, leading our state to a new Golden Century (and here was me thinking the Golden Century was where Sussex Street Labor went for a Chinese meal).
Behind all Perrottet’s bravado, however, he has taken his lumps, using his budget to absorb some of the economic pain and keep stimulating the state’s slowing economy.
Which makes him much less in denial than his federal counterpart, Josh Frydenberg, who despite all the bad news we’ve had about the national economy since his budget in April, says he’s pressing on with returning the federal budget to surplus.
The stark truth, from which Perrottet was trying to distract attention, is that the NSW economy is well past its peak. It will be many years before yet another housing boom brings back such good times.
The real question is just how far the economy will deteriorate before it levels out. Perrottet sees it slowing only to annual growth of 2.25 per cent in the financial year just ending and going no slower in the coming year, before bouncing back to its average rate of 2.5 per cent in the following years.
In other words, the present sharp slowdown will prove to be just a blip in our inevitable progress onward and upward. Like Frydenberg, Perrottet is a member of the “back-to-normal-in-no-time” party.
Let’s hope their optimism is right. I doubt we’re that lucky.
Perrottet makes much of the unusually strong growth in employment – and unusually low rate of unemployment – we’ve seen in recent years, with NSW performing better than most other states.
What he doesn’t mention is that, according to his own forecasts, those days are past. Employment may have grown by 3.25 per cent in the financial year just ending, but in the coming year growth will slow to 1.5 per cent, and a fraction less in subsequent years.
On the other hand, while the labour market is weakening, we’re told, wage growth will be strengthening, growing 0.75 percentage points faster than consumer prices in the year just ending and pretty much for the next three or four years.
Why so confident of stronger wage growth? Because, if it doesn’t happen, consumer spending will fall in a heap and so will the economy overall.
It’s when you come to his budget that Perrottet’s actions speak louder than his happy words. Having achieved years of huge budget operating surpluses when the housing market was booming and collections of conveyancing duty were overflowing, he’s now repeatedly revised down his expected surpluses as the extent of the housing bust has become apparent.
Had he been as obsessed with budget surpluses as his federal colleagues, he could have sought to limit the fall by cutting expenses but, even in this post-election budget, cuts in government spending are minor.
And, unlike other state governments, he has resisted the temptation to lower the 2.5 per cent government-imposed cap on public sector wage rises. Rather, the government will press on with its election promises to hire more than 14,000 extra teachers, nurses, health professionals and police over the next four years.
State governments regularly run operating surpluses to help fund their annual investment in infrastructure and other capital works. Perrottet increased infrastructure spending by 47 per cent in the financial year just ending and plans to increase it by a further 25 per cent in the coming year. This will increase the state’s expected overall (not just operating) budget deficit (repeat, deficit) to $14.5 billion in 2019-20, up from $2.8 billion two years earlier.
Perrottet estimates that this investment spending will account for about 0.5 percentage points of the state’s expected economic growth of 2.25 per cent in each of this and the coming financial years.
He may talk the same see-no-evil talk as the federal treasurer, but he seems to know a lot more about how you keep the economy growing in tough times.
