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An Olympian effort,
but the numbers are all Greek

The Daily Telegraph - 24 May 2000


In many respects the Carr Government's  Budget for 2000-01 is  Olympian - but not simply because, as Treasurer Egan claims, the Government has paid for the Olmpics and still managed to provide for an estimated small cash surplus of $393 million. This Budget is also Olympian in its levels of spending and, even with the new tax reductions, also in the severity of the taxes that the State will continue to levy even after the GST comes into operation from July.

Mr Egan's proud boast is that all the Olympics spending has been fully funded from the Budget and at the same time the Government will achieve in 2000-01 the fourth out of six cash surpluses that NSW Governments have managed over history. While (as just about everyone expected) the Olympics will  cost a lot more than originally estimated, the Treasurer must be given credit for funding them without going into debt. Indeed, his cash surplus is even better than it looks because it is struck after setting aside some $310  million as a pre-payment for future superannuation liabilities.

Hence a better guide to the underlying budgetary outlook is the estimate of $659 million for the net lending surplus for 2000-01 because this reflects only the effects of the current year's activities. This estimated net lending surplus comes on top of the revised 1999-00 estimate for a surplus of more than $1.1 billion, over $500 million of which is also being put away into what Mr Egan described as his `rainy day` fund for future superannuation liabilities. While this can be regarded as prudent, one could be excused for thinking that the NSW Government has money coming out of its ears if it can make such large pre-payments for the future.

There is marked  contrast between these provisions for future superannuation and the size of the latest  cuts in pay roll tax and stamp duties that Mr Egan is vaunting (which include a decision to further encourage first home buyers in metropolitan Sydney which appears to conflict with the Premier's view that Sydney is already over-crowded!). These tax cuts total a miniscule $127 million next year, equivalent to only about one per cent of total tax revenue of around $12.5 billion.

Admittedly, these cuts come on top of the tax reductions announced last year so that the total effect of tax policy changes is to reduce tax revenue by over $600 million or about 5 per cent in 2000-01.The Budget papers also hold out the promise that the Government intends to `close the gap between the New South Wales' tax burden and the national average over the medium term`.

But, while this move down the tax reduction path  is most welcome, it is starting from a very high base. The Carr Government has taken this State from having tax rates well below Victoria's to having rates that were on average 10 per cent above in 1998-99. In that year New South Wales residents were paying about $2 billion more in taxes than if they had paid the same amounts per head as their southern cousins. Just what that figure is now is almost impossible to estimate because of the changes in accounting and inter-governmental arrangements. But the difference is almost certainly still large. In short, the Government still has a lot of tax reductions to do to make the State more competitive.

This emphasises the point that it is not sufficient to assess a State's budgetary performance only by reference to the overall result: a surplus is easy to achieve if taxes are allowed to run rampant. Thus, Treasurer Egan's focus on the improvements in the financial side of the Budget, including reductions in net liabilities, is clearly calculated to try to divert attention from the excessively high spending and tax levels that continue to exist.

These have been built up over the past five years as the Carr Government has, ironically, reaped the economic benefits from the much improved budgetary policies pursued by the conservatives in Canberra. Those policies should also sustain growth in the NSW economy in 2000-01, along with the boost from the Olympics and the demutualisation of the NRMA.

The accounting changes make it difficult to identify the extent and areas where the expenditure side of the Budget is padded. But the next Government will almost certainly need to appoint an Audit Commission to undertake a detailed examination and reveal the scope for making a major reduction in State taxation levels.