Appropriation (2018-2019) Bill 2018 and Budget papers 2018-19


MR RICH-PHILLIPS (South Eastern Metropolitan) (20:14:46) — It is easy to understand Mr Ondarchie's concern at the lack of clarity on the notice paper. Mr Ondarchie is quite right, because we do have a very unusual situation with the notice paper at the moment. We have two sets of budget papers listed for debate on the notice paper. We have the budget papers 2017–18, which of course was last year's budget, and we also have the Appropriation
(2017–2018) Bill 2017, which was last year's budget bill. Now, according to the Deputy Clerk and your ruling, Acting President Patten, on Mr Ondarchie's point of order, tonight we are actually debating the 2018–19 budget papers and the 2018–19 appropriation bill. I have to say, putting aside the jocularity with which the point of order was raised, that I think this is the first time in this Parliament's history that the Parliament has not passed an appropriation bill, and we actually have two appropriation bills for two separate financial years sitting on the notice paper at one point in time.

Of course this is as a consequence of the changes that were made to the Constitution Act in 2003, and as the Leader of the Government says, it is deemed to have passed. With those changes that were made to the Constitution Act the appropriation bill only need pass one house. But I note that since those changes were made to the constitution in 2003, some 15 years ago, this is the first time a government has not bothered to pass the appropriation bill through the Council. In fact we had the second-reading debate last year. We commenced consideration in committee on last year's appropriation bill, and then it stopped. Mr Jennings spent some considerable time in committee — I remember it well, and I remember having done it on the other side too — and then for some reason the bill was parked; we never came back to it.

We have this extraordinary situation of a government not bothering to pass the appropriation bill. It was not that the bill was opposed. There was never any indication that the general appropriation bill was going to be opposed or amended; obviously there were some issues with the parliamentary appropriation bill last year. Yet it just stopped; it was just not dealt with. Here we are 12 months later with those budget papers and that appropriation bill still sitting on the notice paper, which raises the question whether the government intends to pass this year's appropriation bill or whether we will get to the expiration of this Parliament in November and we will have two appropriation bills which have not passed both houses of the Parliament.

Mr Dalidakis — Do you want to pass this one quickly?

Mr RICH-PHILLIPS — I will take up Mr Dalidakis's interjection. I would like to see this appropriation bill and the debate on the budget papers dealt with and given appropriate —

Mr Dalidakis interjected.

The ACTING PRESIDENT (Ms Patten) — Order! Mr Dalidakis! Please continue, Mr Rich-Phillips.

Mr RICH-PHILLIPS — Thank you, Acting President. With the prospect of the Parliament being prorogued at the end of this year we may face the situation of having two appropriation bills which have not been passed. But we would like to see this appropriation bill given appropriate consideration by the Legislative Council. The reality is that, yes, there is a mechanism in the constitution by which the bill is deemed to have passed when it passes the Assembly, but the reality also is that we have five members of this chamber who do not have party colleagues in the other place, who do not have the opportunity to represent their issues with the appropriation bill, their issues with the budget, in the other chamber. The only opportunity they have to put their position is through the consideration and passage of the bill through the Council. By the government deciding to park last year's appropriation bill and not put it to the test — not give people the opportunity to vote on it — it was actually denying the five representatives in this chamber who do not have colleagues in the other place the opportunity to put a position on the vote, and it would be regrettable if we saw the same happen with this year's budget and budget papers.

Moving to the substance of the debate on this year's budget and the framing of budgets generally, it raises the question: what are we looking at with a budget, what is a budget about, what is the appropriation bill about and what are the budget papers about? There are really two key considerations with the framing of the budget; there are two key policy outcomes that a government seeks to achieve in putting a budget together. The first is the framework for the delivery of public services and the framework for the delivery of public infrastructure. Of course a state government is a big provider or deliverer of public services — it is the key service delivery level of government — and it also has a substantial role in the delivery of public infrastructure.

This budget — and I will talk about the details of it a bit later in this contribution — seeks to spend almost $70 billion between asset funding and output funding. The budget firstly frames the government's priorities around service delivery and frames the priorities around infrastructure spend. The other focus of the budget is what it does the economic policy settings it puts in place for the Victorian economy — the things which determine whether there is investment private sector investment in the state, whether businesses invest in Victoria, whether they create employment in Victoria and whether they create wealth for Victorian citizens.

Now, it is fair to say the impact of a state budget on those economic policy considerations is less than that of the commonwealth government. There is no doubt that the commonwealth government has bigger policy levers with regard to economic outcomes. But there is still a role for state policy to impact economic outcomes in Victoria, and there is a responsibility for the Victorian government, a state government, to put in place economic policy settings which capitalise on the state's competitive advantages and benefit Victorian citizens relative to those of other states. Fundamentally that is the role of a state government — to ensure that we capitalise on the competitive advantages of our state, that we take advantage of those differences, those unique characteristics, those assets, those opportunities and those resources which are inherent in our state and we make the best use of those for the population of our state.

That is a very important consideration, because increasingly we see policy considerations from the commonwealth where there is a view — particularly with commonwealth provision and funding of state services and some funding into infrastructure — that the commonwealth approach, harmonisation across the states and territories, is a good thing. There is a very strong view at a commonwealth level that providing harmonised services, a harmonised approach to policy, is the way to go and that the state government should simply be a service delivery agency of the commonwealth delivering a cookie-cutter policy outcome on a commonwealth-funded model that is consistent across the nation, be it in education, health or whatever policy area.

That of course ignores the value and the role of state and territory governments, which is to maximise the benefit for their citizens, to look at the opportunities that Victoria has versus New South Wales and, as a Victorian government, to put in place policy settings that exploit and take advantage of those differences here in Victoria to make Victoria a better destination for investment than New South Wales, to make Victoria a stronger economy and to make Victoria a better place to live. Exploiting those competitive advantages, exploiting those opportunities relative to other states, is really the role of the state government. Otherwise you just have a delivery arm of the commonwealth running commonwealth services into the state. So there is a real role for state governments, and it is maximising the benefits for our state.

In that context, it is worth looking at a scorecard. How is Victoria performing relative to our competitors? Our most obvious competitor in an economic sense is New South Wales. Obviously over the last decade to 15 years in particular we have seen a resources boom in Australia, which has been quite distorting in terms of the relative economic strengths of some of our states and territories. Obviously states like Western Australia, Queensland and the Northern Territory on a per capita basis have been beneficiaries of that resources boom, which has distorted the relativities between the states, as obviously those states have been the location of much of the mineral wealth which has been harvested in the last decade to 15 years. Of course that has been reflected in the relative economic performance of those other states and territories.

But for a like-and-like comparison, to compare an economy that in its industry mix is similar to Victoria and which has not had a big distortion because of resources impacts, we look to New South Wales, which is obviously a state a bit larger than Victoria in population, significantly larger in land mass and larger in economic terms. Comparing states like Victoria and New South Wales is quite illustrative. One of the things we often talk about in Victoria is that Victoria should be getting its fair share of commonwealth grants, for example, and I will talk about that in a little more detail shortly.

When we talk about what is our fair share, we typically talk in terms of population share. Victoria is accepted as having around a quarter of the nation's population. In fact in the most recent Australian Bureau of Statistics (ABS) estimates, which were for the end of calendar year 2017, Victoria actually had 25.74 per cent of Australia's population, so a little bit more than a quarter of Australia's population. But at the same time when you look at the size of Victoria's economy, which should also be a quarter of national output, we actually see that for the most recent data provided by the Australian Bureau of Statistics, which is for the
2016–17 financial year, Victoria's economy only accounted for 23.5 per cent of total national output. So despite coming up to 26 per cent of the population, we are only producing 23.5 per cent of the national output. That raises the question of why. Why is Victoria not producing its fair share of economic output?

One of the things we look to in that regard is investment. Obviously one of the drivers of economic output is economic investment — where businesses, where the private sector, choose to invest their capital to generate economic returns. For 2017, which is the most recent full period the ABS published data for — they publish quarterly data, and the most recent is the December quarter of 2017 — across the full period of calendar year 2017 Victoria's share of national private capital expenditure was only 18.3 per cent. So we are coming up to 26 per cent of Australia's population living in Victoria, we are generating 23 per cent of economic output here in Victoria despite having a bigger population, but we are attracting less than 20 per cent of investment — 18 per cent of private sector investment is coming to Victoria — which is well below our population share. What are the policy settings in Victoria that are seeing private sector investment flow to the other states and territories and not to Victoria? Why are we not attracting our population share of investment to Victoria, what are the implications and what are we doing about it?

One of the reasons we are seeing less than the population share of investment coming into Victoria is that, as a proportion of gross state product (GSP), Victoria now has the highest state taxes of any state. Our state taxes run at about 5.4 per cent of gross state product, which is higher than any other state in Australia and has been consistently so under this government. If a state is hitting its businesses and hitting its citizens with the highest taxes in Australia, the reality is capital investment will go to other states where taxes are lower. We are seeing the consequences of that. We have seen the consequence of that with our less-than-population share of private sector capital expenditure. What are the implications of that? What does it mean for households? It means our income is less.

The most recent — and to put it in purely economic terms, again comparing Victoria with New South Wales because it does have a similar economic structure to our own state — 2016–17 output-per-head gross state product per capita in Victoria was $63 900. For every Victorian citizen there was $63 900 worth of economic output by comparison with New South Wales, where the figure was more than $71 500. So there was a substantial difference in economic output per head, which of course flows into the wealth of citizens and flows into the income of the state's citizens.

When you jump from the basic economic numbers — the gross state product numbers — to numbers which are more familiar to citizens, average weekly earnings, which is the direct benefit that flows from economic activity to individual pay packets, we see on an annualised basis for the most recent numbers published by the Australian Bureau of Statistics that average weekly earnings on a total earnings basis in Victoria were $60 200 per person. For New South Wales it was $63 900. So there was $3700 more in average earnings in New South Wales than in Victoria. Those numbers point to significant material difference and disadvantage between the Victorian economy and Victorian workers compared to those of New South Wales. Of course that is going to be a consequence of an environment where the government has the highest taxes compared to any other state and where investment is deterred as a consequence.

That then goes to the question of what is the strategy? We know there are these economic challenges. What is the government's strategy for dealing with them? We know beyond the basic economic challenges that I have outlined that there are a number of other challenges which fall into the broad livability category. Melbourne has had the reputation through the Economist Intelligence Unit (EIU) surveys of being one of the most livable cities in the world. Melbourne has consistently ranked at the top of the pile in that global survey by the EIU. Yet the challenges we now have include addressing population growth, and the budget shows that in recent years the population has been growing in Victoria at more than 2 per cent and is expected to continue growing at more than 2 per cent, which is very high in historical terms — a good third higher than long-term growth rates in population. We have the challenge I spoke about earlier of lower wages in Victoria compared to New South Wales, and of course the cost-of-living impacts.

One of the issues which is of most concern to Victorian citizens now, and has been in the last couple of years and is of growing concern, is the cost of utilities: power and gas and, to a lesser extent, water. On the energy side, of course, those costs have been driven very heavily by the energy policies of the government.

Ms Mikakos — They had nothing to do with Jeff Kennett privatising the system!

Mr RICH-PHILLIPS — I will take up Ms Mikakos's interjection, because this was actually the subject of the debate we had yesterday. Her colleague Mr Mulino gave a very good contribution, where he said in relation to privatisation that quite often outcomes post-privatisation, which have nothing to do with the issue of privatisation, are conflated as being caused by privatisation. They are not my words; they are Mr Mulino's words, and he was making a very clear point around privatisation of the energy industry — that the things that have been attributed to higher prices in the last couple of years were not a consequence of the privatisation of electricity.

We actually saw in the decade following electricity privatisation in Victoria falling real costs to consumers as the system became vastly more efficient than it had been when it was run as the State Electricity Commission of Victoria. What we have seen with price increases in recent years is a consequence of the policy changes of this government and the South Australian government, which have led to a drop-off in the use of our most economical source of energy, being the brown coal in the Latrobe Valley, and a substitution with higher cost, less reliable sources, such as renewables, that this government has hitched its barrow to.

We have a situation where we have high population growth, well above that which has been experienced historically in Victoria. Of course the consequence of that is the congestion problems, which are well-known certainly to all metropolitan Victorian residents. We have the challenge of lower wages in Victoria relative to New South Wales; the high cost of living, which I have spoken about; and the issue of lagging investment — the fact that Victoria is attracting 18 per cent of private sector investment while representing almost 26 per cent of the national population.

Those are things that you would expect to see addressed in the budget, and we have budget paper 2, which is the 'Strategy and Outlook' budget paper, which is produced every year. That is where you would expect to see a strategy set out to address those long and medium-term challenges. It is also where you would expect to see a strategy set out around the state's finances. As I said at the outset, the budget is about two things: setting the policy parameters for the state's expenditure on services and infrastructure, and setting the economic parameters for the state's economy using the levers that are available to a state government.

What it should not be is just a grab bag of pre-election promises thrown together because the government sees them as having electoral popularity — counting down six months to an election — and not having any overarching strategy that sets out how they are going to deliver on a framework which addresses population growth, addresses the cost of living, addresses congestion and addresses lagging investment. In that sense the 'Strategy and Outlook' budget paper does not live up to the mark. It fails to set out that medium and long-term agenda which has the parameters and has the settings that will address those challenges that exist in the Victorian economy.

Even in respect of the budget settings, the government has not put in place an appropriate set of strategies. I look back at the last set of budget papers released by the coalition government, which was the 2014–15 budget. Table 1.3 in 'Strategy and Outlook' set out the medium-term fiscal strategy, looking at the parameters for the state's budget, and it set down four parameters. The first was infrastructure investment, which had a tangible target for infrastructure investment of 1.3 per cent of gross state product, calculated as a rolling five-year average — so a very clear, measurable, tangible target for infrastructure investment obviously focused on addressing the issues of congestion, population growth and infrastructure demand.

The government also recognised the need to control debt, and we had a target of general government net debt reduced as a percentage of gross state product over the decade to 2022. So we had a target of reducing debt as a proportion of the economy. We also had the actual outcome of debt on a downward trajectory in nominal terms as well. On superannuation liabilities we had a target of unfunded superannuation, which is very substantial on the Victorian general government sector books, being fully funded by 2035. In respect of operating surplus, the bottom line, we had a target of a net operating surplus of at least $100 million and consistent with the infrastructure and debt parameters — so a tangible dollar figure, a minimum threshold, for the bottom-line outcome in the budget.

We compare those objectives with those of the current budget, the 2018–19 budget, brought down by this government. It is interesting to see that there is nothing tangible about the targets now. The target with respect to infrastructure has been abolished. There is no longer a target of spending at least 1.3 per cent of GSP on infrastructure. The target with respect to debt is now:

General government net debt as a percentage of GSP to be maintained at a sustainable level over the medium term.

So there is no commitment to reducing debt or managing debt — simply to maintain it at a 'sustainable level' with no description as to what the Treasurer believes is a sustainable level.

With respect to superannuation liabilities, that remains as it was. For the operating surplus the target is:

A net operating surplus consistent with maintaining general government net debt at a sustainable level over the medium term.

So again, the tangible target which existed under the previous government of a surplus of at least $100 million is no longer spelt out in the budget strategy. We no longer have tangible targets for budget positioning just as we do not have a tangible strategy for the economic positioning that is required to meet the state's medium-term and long-term economic challenges.

I would now like to turn to the specific parameters which are laid down in the budget and compare them to where we have been. The first area I would like to look at is revenue — the money the state collects. The final budget of the coalition government, which was the budget of the 2014–15 financial year, was expected to collect $53.7 billion — so a very substantial amount of money. Four years later, in the final budget of the current Andrews Labor government, that revenue target for the state is now $69.5 billion. In four years we have seen the state budget increase, blow out, expand, by more than $14 billion — a 30 per cent increase in four years. I ask the question: whose household budget has increased by 30 per cent in four years? Who has experienced that increase in wages over a four-year period?

We have seen an extraordinary blowout in revenue collection by the state over that four-year period. That $69 billion means nothing — it is an enormous number, so we cannot relate to it — so what does it mean for a Victorian household? There are 2.5 million households in Victoria in round terms, according to the ABS, so the state government is collecting around $27 800 for each and every Victorian household this year. Now, some of that comes from commonwealth grants — a little bit under half — and some of it comes from paid services provided by the state; the bulk of it comes from state taxes. So Victorian households are contributing $27 800 to state coffers each and every year.

Mr O'Sullivan — Every person?

Mr RICH-PHILLIPS — Every household. That is a very substantial cost borne by Victorian households. Not only have we seen that 30 per cent growth in just four years but we are seeing revenue now — for the 2018–19 financial year — that is more than $8 billion higher than this government forecast in its own
2015–16 budget.

Mr O'Sullivan — Million or billion?

Mr RICH-PHILLIPS — Billion — a thousand million — $8.308 billion in just three years. Three years ago they said they would collect in the order of $61 billion, and now it is $69 billion — a blowout of $8.3 billion in three years. That is an extra $3300 for every household. This is at a time when cost-of-living pressures on Victorian families are worse than they have been for very many years.

What feeds into that? State taxes. As I said before, Victoria now has, as a proportion of gross state product, the highest taxes in Australia. In 2014–15 — again, the last budget produced by the former coalition government — we forecast tax revenue of $18.3 billion. In this year's budget — four years down the road — that estimate has increased to $24 billion. That is an almost $6 billion increase, a 31 per cent increase, over that four-year period, and in terms of the cost per household, around $9600 for each Victorian household. Again, the taxes that will be collected in this year's budget are a lot higher than this Labor government estimated for this year three years ago in its 2015–16 budget, some $2.7 billion higher. So we are seeing a massive windfall gain in overall revenue of about $8 billion, and we are seeing a massive windfall gain in tax revenue of $2.7 billion. As I said, this is at a time when our state taxes as a share of the economy are the highest of any state, when we have seen increases in imposts such as a tripling of the coal royalties, which led to the closure of the Hazelwood plant in the Latrobe Valley and to a substantial increase in retail electricity prices for Victorian consumers, and we are not seeing tax relief.

I would like to touch on some of the individual tax measures in this year's budget. The key tax sources — and there are dozens and dozens of taxes that the state collects and a dozen taxes that have been introduced or increased under this government, notwithstanding the commitment made by the now Premier leading up to the 2014 election — or main tax revenue lines for the state are payroll tax, land tax and stamp duty on property transfers, and I will just look at those three at this point.

The first one I will look at is land tax. This year the government is now budgeting to collect $3.93 billion in land tax. Back in its 2015–16 budget it said that was only going to be $2.2 billion, so that is a windfall of $870 million, driven by, as we know, high property prices.

In relation to stamp duty — land transfer duty, to use its correct name — this year the government is budgeting to collect a little over $7 billion, almost $7.1 billion. Back in their 2015–16 budget they said for this year it was only going to be $5.2 billion, so that is again an extra windfall gain of $1.8 billion — more than they budgeted for when they first did the estimates for the budget year. And again it is driven by property prices and by the turnover in the property market.

The third major tax line to talk about is payroll tax. I raise payroll tax because in this year's budget the only tax cut we saw was a minor reduction in the payroll tax rate for businesses based outside metropolitan Melbourne that employ people. Yet when you actually look at the revenue line for payroll tax, notwithstanding what the Treasurer regards as his generosity, we are seeing payroll tax in this year's budget increase by around $230 million compared to last year's budget. Despite the headline 'We're providing a tax cut' in relation to payroll tax for country businesses, in fact payroll tax collections are still increasing and will be $230 million higher in 2018–19 than they were last year. It is not a real tax cut when you are collecting more tax than you did last year. They are collecting an extra $230 million, having given back, I think, $40 million.

We are seeing taxes well above the level forecast only a couple of years ago, and we are not seeing any relief. Of course because so much of tax revenue is based on the property market, those taxes are very vulnerable. Because the scales, particularly with land tax and stamp duty, are quite progressive tax scales, you only need a small softening in property prices to see that tax revenue drop very substantially. In the case of stamp duty a drop in the number of properties sold in auction turnover and regular sale turnover will see stamp duty revenue drop away quite quickly. I will come to that as one of the risks to the budget shortly.

The other area to focus on is grant revenue. A big part of the Victorian budget comes from the commonwealth — we know that — through an agreement that was reached with the commonwealth government in the early 2000s with the introduction of the goods and services tax. All the states and territories receive all the GST revenue. It is divided up by the Commonwealth Grants Commission, and that is probably the single biggest grant source of revenue for the Victorian government.

In 2014–15, the last year of the coalition government, grant revenue was $24.5 billion. This year it is going to be almost $33.5 billion — some extra $7 billion in grants from the commonwealth government. When you compare what this government thought it was going to get in the 2018–19 year with what it now says it is going to get, there is an extra $4.8 billion — almost $5 billion — in extra grant revenue from the commonwealth. But again that is a big risk for the state because we know that commonwealth grant revenue is volatile. We know the state budget is heavily reliant on it.

Around 48 per cent of this year's budget is attributable to commonwealth grants revenue, and we on this side of the house are very clear in our view on commonwealth grants. We believe commonwealth grants should be allocated to Victoria in accordance with our population share which, as I said earlier, is a little under 26 per cent of the national population. We should be receiving a little under 26 per cent of the GST revenue and the other grants from the commonwealth. That has not been achieved yet, and it remains an objective for the coalition in Victoria to get that proportion of grant revenue.

What we do know about commonwealth grants is they are volatile. The proportion Victoria receives moves around quite substantially. In the term of the previous government we saw that shift between the low 90s and the mid 80s in percentage terms of our population share, which in dollar terms is very substantial volatility over a short period of time. While at the moment the state is receiving a better GST deal than it has for some time, the risk of that GST proportion changing as decisions of the Commonwealth Grants Commission change is significant and is something that the state needs to manage in terms of that risk.

We have seen that when you take into account the unbudgeted tax revenue that is now expected to flow this year and the previously unbudgeted grants revenue that is now expected to flow this year the state is $8.3 billion better off than it was expected to be just three years ago. This raises the question: what is the government doing with this windfall revenue? Has it been prudent with this windfall revenue? The reality is it has not, because at the same time as we have seen this $8 billion in windfall revenue accrue to the state for this current financial year we have seen a massive blowout in expenditure. In the coalition's final budget our expected expenditure for the 2014–15 financial year was a little over $54 billion, which again is a very significant amount of money — more than $1 billion a week was being spent by the state government four years ago. Now in the 2018–19 financial year that expenditure has increased to more than $68 billion — an extra $14 billion in spending in just four years. Again we are seeing spending not only increase compared to 2014–15 but increase substantially compared to what this government said it was going to do just three years ago.

Three years ago this government said it would spend in the order of $60 billion for this year, yet now we are being told that is $68 billion, so an extra $8 billion, almost $9 billion, in extra expenditure in this forecast financial year, and where have we seen it go? A big part of it has gone into the public sector payroll. We have seen employee expenses increase from $18.8 billion in 2014–15 to more than $25.5 billion in this budget year, which is an increase of nearly $7 billion. Again comparing what the government said it was going to spend to what it is now saying it is going to spend, it is an increase of $3.2 billion in public sector wages. In just three years an extra $3 billion — an unbudgeted $3 billion — in expenditure has come through to the bottom line.

Where has it come from? It has come from the growth in public sector wages and it has come from the growth in the number of people employed in the public service. The rhetoric from the government is that this is all about frontline services, it is about extra police, nurses, teachers and frontline service delivery, but that is not reflected in the data that comes from the public sector commissioner, which I think is the new title for the body. When you look at the data published by the public sector commissioner you firstly see that in overall headcount between 2014 and the last collected data, which was the 2017 calendar year, the Victorian public sector grew from 263 700 people — if you think about that, that is more than a quarter of a million people who were employed in the public sector in 2014 — and in 2017 it was up to 296 000 people. That is an extra 33 000 people employed in the public sector in Victoria in the life of this government. Averaged across the term, it is an extra 11 000 people each and every year under this government.

Ms Mikakos — Child protection workers, youth justice workers — you don't value them. You want to sack them. You want to scrap the mental health programs.

Mr RICH-PHILLIPS — I will take up the interjection from the minister, because the minister ran the line, the rhetoric of the government, about it all being frontline services. That is not what the public sector commissioner says. If you look at the growth data published on the website of the public sector commissioner, the public sector commissioner says that growth in the headcount of the public healthcare workforce has been 3.8 per cent; the growth in government schools, which is predominantly teachers, has been 2.5 per cent; the growth in police and emergency services has been 4.3 per cent; but the growth in the Victorian public service — that is, the general public servants — has been 9.2 per cent. These are not my figures; they are the public sector commissioner's figures — public healthcare headcount up 3.8 per cent; the general public service up 9 per cent. Yet the minister runs the rhetoric of the government that it is all frontline services, but the public sector commissioner makes it very clear it is not frontline services where that growth has been; it has been in the general public service — an extra 33 000 people in three years.

The next area I would like to touch on is the issue of debt. One of the challenges for the public sector, as I said at the outset, is population growth, infrastructure demand and the need to satisfy that. As we know, infrastructure provision is expensive. The capital required for public sector infrastructure is very large. There are three ways to fund it. One is through the private sector, through PPPs — public-private partnerships — and we saw Dr Ratnam rally against that yesterday in her contribution; another is through accumulated surpluses in the general government sector; and the third is through the use of debt. As I said, when you compare the parameters for this year's budget with what this government said this year's budget would look like a couple of years ago, the government is collecting more than an extra $8 billion in revenue. A lot of that revenue is volatile — commonwealth grants and property-related taxation, both of which are very volatile. If the property market slows down — lower volume, lower prices — the fall-off in stamp duty revenue will be significant and the fall-off in land tax will be significant. If the Commonwealth Grants Commission changes and adjusts the allocation formula between the states, we could see a big drop-off in commonwealth grants revenue.

So we have an extra $8 billion in windfall revenue. A prudent government would have allowed it to flow through to the bottom line to fund our infrastructure program, but instead this government has taken every dollar of that $8 billion in windfall revenue and allowed expenses to grow with it. So we have an extra $8 billion in windfall revenue and we have effectively near enough the same amount in extra expenditure. So there is no additional capacity flowing through to the bottom line, and infrastructure which could have been funded through larger accumulated surpluses is needing to be funded through debt. We are seeing that in the state's debt profile — the estimates for net debt.

As I said, talking about the strategy settings earlier on, the previous coalition government had a target of reducing net borrowings — net debt — as a proportion of gross state product and in fact was paying down debt in nominal terms. Under this government we see that between June of last year, when net debt was pegged at $15.7 billion, and June 2022 net debt will almost double in nominal terms to almost $31 billion. So in just five years we are seeing net debt doubling in nominal terms at a time when the state in a single year has collected $8 billion in unbudgeted windfall revenue. That windfall is not flowing through to fund infrastructure. It has gone to fund a blowout in expenditure, and it is revenue that is volatile because it is dependent on the Commonwealth Grants Commission and on the property market. That raises the question: what happens when there is a downturn in the property market? There are already indications that the market is softer, the volume of property sales is slower and the prices are lower.

One of the additional issues with this budget is how believable it is. In 2015 the government published four years of estimates out to 2018–19, which is the current budget year. They were estimates that said, 'Following the coalition government we'll have a big increase in spending and then we'll be good'. The government said, back in 2015, that the 2016–17 expenditure would grow by 2.2 per cent, then 3.9 per cent and then 2.9 per cent. They said, 'We'll be very prudent. We'll have an increase in the budget year, and then growth will be low in line with inflation'.

Of course when we come to the next year what they said was going to be 2.2 per cent in expenditure growth actually turned out to be 5.3 per cent in expenditure growth. But again they said, 'Then we'll be good. We said we'd grow at 2 per cent. We're actually growing at 5.3 per cent, but then we'll be good and we'll cut growth to 3 per cent, 2.2 per cent and 2.7 per cent'. We move on to the next year. Having already exceeded the previous year's target by double the growth rate, what they said would be 3 per cent growth in fact turned out to be 5 per cent growth — 'But then we're going to be good; we're only going to grow at 3.7 per cent, 1.5 per cent and 2.9 per cent', they said.

Then we come to this year's budget, and again the government said, 'Last year it would be good. This year will be good. We had a bit of a splurge last year, and then we'll be good this year'. So what we were told was going to be expenditure growth of 3.7 per cent we are now told is expenditure growth of 9.9 per cent in one financial year. That is a 10 per cent increase in expenditure, jumping from $61.9 billion to $68.1 billion in one financial year.

So I raise the question: how believable are these numbers? Because every year we are told we will have a blip then we will have restraint on expenditure growth, and every year when the next year's budget comes around what was 1 per cent or 2 per cent is suddenly 5 per cent, 6 per cent or in this case a 10 per cent increase in a single financial year. This throws into doubt the credibility of any of the estimates in this year's budget papers as the previous years have proven to be completely unreliable.

The other matter I would like to touch on in my remaining time is the risk in these estimates. Not only would it be reasonable for members of the house and members of the community to have doubts about the estimates given how inaccurate they have proved to be in previous years, certainly as far as the government's intentions on expenditure restraint go, but when you look at the 'Strategy and Outlook' budget paper, under the heading 'Risks to the outlook', Treasury has gone through and talked about what it regards as some of the risks for the Treasurer in signing off on the budget papers. It talks in very general terms about moderating labour force participation, participation rates, GSP growth and expected wages growth. It is certainly ironic to talk about the benefit of expected wages growth in the Victorian economy while trying to downplay the impact of wages growth in the public sector.

But what the risks section of the budget papers does not talk about is the risks I have just touched on, the fact that our budget is highly vulnerable to property market shifts, more so than ever given we have taken a huge upswing in revenue off the property market and immediately put it into recurrent expenditure. There is the ongoing issue of volatility and GST. I come back to this one regularly because having been a Treasury minister and having seen how volatile those commonwealth grants can be from year to year and from six-month period to six-month period as the Commonwealth Grants Commission adjusts its allocations and as the aggregate allocations from the commonwealth Treasury change with expected shifts in the overall national economy, those numbers are significant, and they are very volatile. The fact that the budget papers skate over those issues as risks is of significant concern.

This government needs everything running in its favour for these numbers to be achieved, and history shows that that luck runs out. The economic cycle changes. We are already, as I said, seeing that in the property market. We are seeing signs of a softening — a softening in prices and a softening in volumes — which will flow through to the bottom line.

This budget is in many respects built as a house of cards. The government has been the beneficiary of enormous revenue gains far in excess of anything it anticipated two or three years ago, and rather than doing the prudent thing with those revenue gains, rather than letting them flow through to the capital account and minimising the state's reliance on debt, we have instead seen the government take a sugar fix. They have allowed the revenue to flow straight to the expenditure line. We have seen a massive blowout in the size of the public service — 33 000 additional people across the full Victorian public sector, not frontline but back of house. We have seen no resilience, no capacity created in the budget — no capacity to absorb shocks, no capacity to absorb changes in the property market or changes in commonwealth grants and no capacity to allow for adjustments without negative consequences if the need arises. The need can arise very, very quickly as estimates change from the commonwealth and indeed from the Victorian Treasury.

This budget in many respects fails Victorians. It does not have a strategy to address the challenges of infrastructure. It does not have a strategy to address the challenge of the fact that incomes in Victoria are substantially below those of New South Wales. It does not have a strategy to address the fact that private sector investment in Victoria is substantially below what it should be in an economy with a population of Victoria's size.

Victorian citizens really need to ask a question. They need to ask the question: if after four years of Labor, four years of budgets with ever-increasing revenue flowing through to ever-increasing expenditure but with no substantial additional benefit to the Victorian community for the extra spend, are Victorian citizens better off? Is their cost of living better now under this government after four years of Labor than it was under the previous coalition government? Is it easier for Victorians to get to work? After the infrastructure spend we are being told about are things actually better? Is it easier to get to work? When you get home from work are you safer in your homes, and can you turn on the lights? After four years of government are you better off than you were under the previous government? If you do not feel safer in your home, if it is not easier to get to work and if your cost of living is a lot worse in 2018 than it was in 2014, now is the time for change.
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