You’d think that, when it came to assessing the performance of a government in power for 10 years, its handling of economic issues would be central. But, in truth, not as central as you’d think. Much that state governments say about their “state economy” is mere boosterism – or another word starting with b.
The present NSW Treasurer, Dominic Perrottet, is no slouch in telling us how well the state’s doing economically. Before the arrival of the coronacession changed his tune, he used to say we had the “fastest-growing state economy over the past five years” and were “leading the nation” in this or that.
He told us about the Coalition’s “strong financial management” which kept the government’s triple-A credit rating secure, had produced a string of budget surpluses and a “negative net debt”.
“The greatest threat to our future prosperity,” he told us, “would be a return to the budget deficits ... of the past”. Ask him about the present huge deficit and the return to positive net debt and he’ll tell you we’d be crazy not to be borrowing when interest rates are at rock bottom.
Several of the big banks regularly rank the eight states and territories according to their economic performance. This is like calling a horse race. At any point in the race, some horses will be ahead and some behind. At a different point in the race, the order will be different. What does this prove? Not much.
Time for some sense. The fact is, many silly claims are made about the “state economy” because there’s no such animal. The lack of hard economic borders between the states means there’s one, national economy, with eight corners.
The national economy is managed nationally from Canberra and Martin Place, not Macquarie Street (the Reserve Bank, not the NSW Parliament). Interest rates don’t vary by state, nor the rates of income tax, company tax or the GST.
With a few exceptions – mining and financial and professional services – the industry composition of the states is very similar. The feds carefully divide the proceeds from the GST between the states in a way intended to minimise difference in the quality of public services provided by them. The wealthier states subsidise the poorer ones.
The states have responsibility for public health and hospitals, schools, law and order, roads and transport, planning and local government. But they each deal with them in much the same way.
And, in any case, because NSW accounts for about a third of the nation’s population and economic activity, its performance is rarely far from the national average.
All this explains why talk that purports to be about the management of the state’s economy ends up being about the government’s management of its own finances, as shown by its budget and annual capital works program.
Perrottet and his predecessors are terribly proud of their success in limiting the growth in government spending but, since the wages of state government employees account for well over half that spending, they’ve achieved this mainly by keeping a tight 2.5 per cent cap on annual wage rises and using the excuse of the coronacession to freeze state workers’ wages.
Trouble is, this is a two-edged sword. Every dollar the government doesn’t pay its workers is pretty much a dollar they don’t spend on the products of the state’s businesses. What’s more, there’s evidence that keeping the lid on public sector wages encourages private sector employers to give smaller increases. Screwing down wages is the way to grow the economy?
The Coalition boasts it’s spending a lot more on infrastructure – particularly motorways and railways – than its penny-pinching predecessors. True. Much more. Labor allowed a bunch of discredited American rating agencies to dictate how much it could spend on infrastructure, for fear of what its political opponents would say if it lost its triple-A rating.
This government is no braver, but got the bright idea of “asset recycling”. You privatise government businesses – the electricity companies, ports, buses, ferries, the lottery office, whatever – then use the proceeds to build new stuff without upsetting the Yanks.
Trouble is, the government decided to “fatten the pig for market”. To maximise the sale price of the electricity businesses, it created arrangements that allowed the new owners to put up their prices. When it sold Port Botany and the Port of Newcastle, it did what was intended to be a secret deal where, if the new Newcastle owner decided to build a container terminal in competition with the new owners of Botany, it would have to pay compensation.
So the government got great sale prices at the expense of the state’s electricity users, people who hate all the container trucks rumbling through Sydney streets on their way north, and Novocastrians (including me) who worry about where the jobs will come from as the world stops buying our coal.
Sorry, I can’t say I’m wildly impressed by the Coalition’s decade of financial dealings. Too many bankers, not enough economists.
