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State Budgets: Them and Us

January 5, 2011

From time to time as Premier I faced not arguments so much, but rather a need to explain the case for budget responsibility. The case for matching big increases in public investment with a measure of debt retirement. The need for balanced budgets when revenues are booming. The need to resist unaffordable increases in entitlements for public servants. The urgency of fixing a growing deficit in the workers’ compensation fund.

I’ve had to put up with the occasional comment I was “penny-pinching”, obsessed with debt reduction, too reluctant to plough up borrowings.

Oh yeah ? Well, I didn’t want to see New South Wales end up like Victoria in the early 90s. And I knew that if Labor governments produce a fiscal collapse like that Victoria saw all you get is a conservative reaction when, for the better part of a decade, they get to run riot with their own agenda.

The US states provide another argument for Labor governments sticking to sound fiscal policy. The primary system gives public sector unions great influence over Democratic Party-dominated state legislatures like those of New York, California and New Jersey. They handed out excessive pension benefits to the state employees and drove budgets into chronic deficit. Now the reaction is setting in. In New Jersey it’s already meant big cuts in school budgets. California, too, with worse to come if Jerry Brown is going to close the $28.5 billion budget gap and get state pensions back on an actuarially sound basis.

In these crises the public is going to see standards go backwards and public servants are going to loose heaps of conditions and entitlements, even their right to collective bargaining.

Reckless budgeting always brings a brutal correction. This was a lesson the ALP learnt after the Federal experience of 1972 to 1975.

Between 1995 and 2005 NSW saw big increases in spending on infrastructure ( $61 billion in fact ) but balanced by $10 billion in debt retirement that protected the Triple AAA rating and guaranteed the GFC did not drag the state budget down. Whatever Barry O’Farrell does to reverse Labor programs he won’t find excuses or justification in the state budget which is as different from those of most US states as night and day.

4 Comments
  1. Thaddeus Du Fresne permalink
    January 8, 2011 11:15 am

    Hello Bob,

    Do you see the Industrial Relations Commission of New South Wales and your governments appointments to it during your term of office (and its role in raising the share of wages as a proportion of the state budget) as part of your legacy of fiscal restraint?

  2. Bob Carr permalink
    January 8, 2011 7:13 pm

    I have a question for you, Thaddeus.

    Do you see an O’Farrell government abolishing the commission ?

    Or legislating to restrict its power to award pay increases to nurses, police, teachers and fire officers ?

  3. Thaddeus Du Fresne permalink
    January 9, 2011 3:51 pm

    Bob,

    I would say spending $20-$30 million annually on a specific institution to deal with employment issues and disputes in the NSW public sector is unwarranted given the Fair Work system. The former Victorian Labor Government obviously made the same assessment.

    What could that sort of money do for the common good?

    As to the nurses, teachers etc and restricting wages etc I would say the budget imperative has to be to keep aggregate annual wage increases to the level of CPI and to have a reasonable mechanism for controlling headcount in the public service.

    Whether that budget imperative proves itself achievable under the politics of a future Liberal Government time will tell. It’s difficult politically because the benefits are medium to long term whilst the pain is short term and the NSW union movement is probably now more recalcitrant than any in the nation including the Victorian.

  4. Bob Carr permalink
    January 9, 2011 5:41 pm

    Interesting points and I find them persuasive. Of course the withdrawal from the IR field in Victoria happened under a Liberal government in the context of budget and economic collapse and it was easy for Labor to not reverse it. The fact that O’Farrell won’t close down the State IR system
    would suggest it is a given of NSW public administration.

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