MANY things have changed over the past 12 months, since Michael Costa delivered his last budget, to alter NSW's financial circumstances. The global financial crisis has altered the outlook on many fronts. As downward revision has followed downward revision in profit and growth forecasts across the world, NSW has felt the effects. Revenue is down an expected $10 billion over four years from what was forecast last year. Following the current year's unexpected deficit of $1.3 billion, the projected 2009-10 budget deficit is estimated at $990 million. But though much has changed, one thing has not: the Government is still finding it hard to get its own employees to stick to the 2.5 per cent wage rise target, which ensures that expenditures do not grow faster than revenues. The Government has provided in this budget for rises of almost twice that. Efficiency improvements have supposedly been demanded in return for any extra pay rises - but do they exist?
To restrain its expenses, this budget has come up with what it calls a "Better services and value plan". The wages cap is part of it, as is the reorganisation announced by the Premier last week, under which 160 state government agencies will amalgamate into 13. The plan also envisages streamlining certain common functions such as legal services and computing, and a series of audits of expenditure and procurement practices. A lot depends on this program. The budget is expected to return to a modest surplus in 2011-12 of $86 million on the assumption that the program's efficiency dividend sees savings of about $300 million a year. Given that the Premier has promised the reorganisation will not involve job cuts, the size of the assumed savings shows the Government is not lacking optimism.
To compensate for the global downturn, the Government is adjusting its strategy: borrowing much more to fund an expanded infrastructure program. The spending on capital works is at a record $18 billion in the coming financial year. By no means all of this is at the State Government's expense: the Federal Government has pitched in with large amounts of cash in the various stimulus packages it has announced. Education is where Canberra's handouts are having the biggest effect. Of the $2.6 billion to be spent on capital works in schools, including buildings and equipment, about $1.8 billion comes from Canberra, enabling spending to increase more than three times over 2008-09. Of the much vaunted record roads budget of $2.5 billion, $420 million comes straight from Canberra, and another $877 million will be spent on jointly funded projects.
The strategy of borrowing to spend more during an economic downturn is entirely justified. The November mini-budget with its swingeing cuts to capital works moved Sydney's fiscal policy in the opposite direction to Canberra's. Given that this recession has hit this state particularly hard, the mini-budget's big cuts looked misguided. It is good that with this budget NSW is starting to act in concert with the Federal Government. Other stimulus measures, such as the cut to stamp duty for purchasers of new homes, also make sense - more sense, indeed, than similar concessions to first-home buyers, because the latter tend to buy existing houses and flats, which does little to boost employment.
But though this budget's general direction is right, not all its big decisions are. Its silliest measure is the Local Jobs First plan, which will see state government agencies and corporations required to give preferential treatment to Australian suppliers. If the Treasurer, Eric Roozendaal, is unashamed of it, as he declares in his budget speech, the rest of us should be: it shows the Rees Government is as ignorant of recent history - in which the removal of trade barriers boosted growth for decades - as it is of the lessons of the Great Depression, which was prolonged by governments the world over implementing protectionist measures just like this, each intending to put their own local suppliers first. It is the worst sort of populism - an appeal to ignorance and prejudice which hampers growth and undermines prosperity.
Its transport measures, though grandiose at times, have an air of unreality about them. The CBD metro is allocated $580 million - for environmental assessment and design work. Actual construction will not begin until next year. For so much money, can that really be all? The project has been so hastily flung together, and fits so badly with existing infrastructure, that the money would be better spent on a thorough transport inquiry. The extension of light rail to Dulwich Hill - much ballyhooed by the Transport Minister, David Campbell, three weeks ago - is not mentioned. Yet the south west rail link, we are assured, will begin - $186 million has been allocated. This turns out to be for work on a transport interchange at Glenfield, and a car park. New car parks, in fact, are a big feature of the rail budget. Commuters from the south-western growth area may well ask: if the rail budget is being used to build car parks, might a little of the roads budget not be spent on a railway line? Let us hope the public service reorganisation will prompt both modes of transport - and all others - to be considered side-by-side in future, and projects co-ordinated properly across the metropolitan area as a result.
The 2009 budget's big question lies in the future: can the cost-saving measures it relies on pare back recurrent spending enough to keep to the budget forecasts? NSW has had Labor treasurers in the recent past who could credibly claim to have kept costs under a tight rein. The Rees Government, though, has many hands from many factions controlling its decision-making. As the election approaches, the reins are likely to loosen.