The politics and promises of O'Farrell's first budget

by Kristina Keneally




The key to understanding the O'Farrell Government's first budget is to follow the politics.

Every politician is interested in the politics of any given situation. But Barry O'Farrell is all about the politics, obsessed actually, and damn the facts.

The Premier and his Treasurer, Mike Baird, began the budget process back in April with a lie: that there is a $5.2 billion "black hole" in the budget, left by Labor, and that Labor had "cooked the books".

Four independent reports have ripped this claim to shreds. Two of the most damning come from the O'Farrell Government's own report on state finances, the Lambert Report, and the Parliamentary Budget Office.

Why claim a hole when there isn't one? Politics, of course. The new Government needs to look like it is doing something, so it manufactures a black hole that it can now "fix".

Most of the NSW press gallery journalists aren't buying the "black hole" argument. But that doesn't stop the Government from prosecuting it, hoping the public hear it.

Treasurer Baird trotted out the $5.2 billion "black hole" again in his budget speech, and said the O'Farrell Government is going to "fix" the state's finances. But let's set the politics aside for the moment, and deal in some cold, hard facts.

Treasury's May 2011 monthly statement showed a net operating budget surplus of $2.012 billion. The Lambert Report, commissioned by the O'Farrell Government, forecast a "worst-case" budget surplus of $204 million by end of 2011/12.

So what is Mr Baird's prescription for a "fix" to an economy that even his own Treasury Secretary says ain't broke? Unilaterally engineering a $3 billion plummet in the state's budget position. The O'Farrell/Baird first budget takes our state $1 billion into the red, a crushing $3 billion decline from May this year.

Sometimes a deficit can be good, especially if it is being used to stimulate the economy during a crisis or to make significant investment in infrastructure. Of course, politically, Baird and O'Farrell are claiming both. Neither is the case.

When it comes to infrastructure, there is only one transport project in this budget that was not already underway by Labor: the North West Rail Link. Fair enough. It's one of the few mandates the Government can legitimately claim.

However, overall, this budget projects $400 million less in infrastructure spending than last year. There are cuts to the western Sydney roads budget: $543 million last year, $348 million this year. That won't gladden the motorists of Western Sydney. And for public transport users, the number of buses being purchased is less than last year, and two rail projects are gone: the Western Express Line and the Parramatta to Epping Rail Link. That's bad news for the people of Western Sydney, but Wayne Swan should waste no time taking back the Commonwealth's $2.1 billion share of the Parramatta to Epping. Maybe he can use it to offset the O'Farrell Government's increase in mining royalties.

Is there anything good in this budget? I'm pleased to see the continuation of three Keneally government social initiatives: the $2 billion Stronger Together package for people with a disability, payroll tax rebates for companies that hire workers with a disability, and social impact bonds. But sadly, the Treasurer's trumpeting of these initiatives in his budget speech masks cuts in services and support for child protection, carers, preschools and pensioners.

If there is no "black hole" in the budget, why is the Government in deficit? Well, a good place to start is the nearly $1.5 billion the O'Farrell Government has given away in the last five months through pokie tax relief, payroll tax rebates, cuts to stamp duty and the torrens assurance levy, and the $7,000 "get out of town" packages to encourage people to move out of Sydney.

Tax cuts and incentives are the Government's prerogative, but all citizens with a conscience should object that the O'Farrell Government is funding these tax cuts by sacking 6,000 public servants and cutting services to the most vulnerable.

But back to the politics of this budget. From a Premier who as recently as last week featured on the front page of The Daily Telegraph as "Barrier O'Farrell", this budget is full of promises that play well politically, but actually are worth very little:

  • A promise to create half a million jobs over the next decade. Promises to create jobs are always popular. This promise equates to about 50,000 a year. But CommSec tells us that the long-term growth projections are for 60,000 jobs a year. The Premier doesn't even need to get out of bed and he's met this promise.
  • A promise to zone an additional 10,000 lots a year. This plays well against the popular but misplaced view that one of the factors driving the high cost of housing in Sydney is a lack of land being released. In fact, NSW has a record number of zoned lots available. The reason they are not getting developed has more to do with infrastructure costs and availability of finance. More land won't solve that problem. Which brings us to the next political promise...
  • A promise of 25,000 housing construction starts annually. Don't get me wrong. The best way to lower the cost of housing is to increase supply. This promise plays well with the business community and with people looking to get into an unaffordable housing market.  But these houses have to go somewhere, and this target it can't be achieved under the politics, and policy settings, of "overdevelopment" being played by O'Farrell and his Planning Minister.
  • A promise to sell "Waratah Bonds" to mum and dad investors to help fund Restart NSW, the Government's supposed $5 billion infrastructure fund. I've described the folly of these bonds here. But Waratah Bonds aren't really about the money. They are all about the politics.

By giving Waratah Bonds such a relatively low value in the budget, $300 million, the Government is signalling that it doesn't really care if these bonds raise any money - they are just a platform for the Government to run advertising campaigns and look like something is happening. (I have described the folly of these bonds here.) In coming months, look for the prospectus and accompanying campaign that tells you, "The NSW Government is rebuilding NSW." What it won't tell you is the fact that your bonds won't even raise enough money to fund a light rail line.

The O'Farrell Government. Politics as usual.

Kristina Keneally was the 42nd premier of New South Wales.

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