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VCOSS State budget training 2015

VCOSS State budget training 2015. David Hayward. 1. Overview. The budget: what is it? A likely theme: Fixing the Coalition ’ s mess will take time Is there a mess? How long will it take to fix? Some final thoughts. 2. The budget: what is it?. Core part of Parliamentary system

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VCOSS State budget training 2015

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  1. VCOSS State budget training 2015 • David Hayward 1

  2. Overview • The budget: what is it? • A likely theme: Fixing the Coalition’s mess will take time • Is there a mess? • How long will it take to fix? • Some final thoughts 2

  3. The budget: what is it? • Core part of Parliamentary system • Appropriation bills must be presented to Parliament for approval • Authorizes spending from the government’s bank account • It is also about politics and theatre • Must get good press (“responsible and fair”) • But must make a difference 3

  4. The budget: what is it? cont • Thousands of pages • 4 volumes • Don’t go with what you are told (forget paper number 1) • Read the numbers • Where to start? • Start with: Budget Paper Number 2 4

  5. The budget: what is it? cont • The narrative and broad measures • Economic growth, employment, inflation etc • Is spending increasing • After efficiencies • After inflation and population growth • Are revenues increasing? • After inflation and population growth • Must put two sides together to tell whether it is fair • who is paying the bill? 5

  6. The budget: what is it cont? Fairness • Remember: Commonwealth provides around half of State revenues (horizontal fiscal equalization)

  7. Budget cont. • GST makes up most, but not all grants

  8. Budget cont. • State taxes are narrow, fickle and largely unfair

  9. The budget cont. • What about the surplus • Is it getting bigger? • Why? • Which surplus? • Two measures: • Net result from transactions (operating result in accrual terms) • operating revenues less operating expenses (but includes super and depreciation) • Operating cash flow (doesn’t take account of non cash expenses) • Both important, but neither gives a total picture (what about capital spending and funding) Is net debt increasing or falling and what is it being used to fund?

  10. The budget cont.

  11. The budget: what is it? cont • Budget Paper No 3: Service Delivery • Detailed data by Department, including new initiatives and “output statements” by program • Useful for the detail • Shows new initiatives • Must deduct “savings” ($140m in 2013/14) • Budget Paper No 4: State Capital Program • Useful for details of new infrastructure spending • Budget Paper No. 5: Statement of Finances • Very useful information on revenues, including Commonwealth Grants • Can assess likelihood of budget being accurate Spend most of your time here! 11

  12. A theme: Fixing the Coalition’s mess • A lot to be done: • Unemployment • East West and a new infrastructure agenda • TAFE (thes is BIG) • A badly depleted public service • Won’t be easy in a post mining investment boom economy 12

  13. Source: Victorian Public Service Commission

  14. A theme: fixing a mess Growth down, unemployment up From 2014/15 Budget Update

  15. Are things that bad? • Is economy brittle? • Is budget fragile? 15

  16. Is the economy brittle? 16

  17. Is Economy brittle cont? • Investment phase over • Demand for commodities falling • Prices collapsing • Terms of trade falling • WA is reeling and economy contracting quite rapidly • Knock on effects to other states will be significant • Falling dollar will help exports of manufacturing and services (education and tourism) • Consumption strong on back of house price boom • In sum: yes, it is brittle • Growth cannot last forever

  18. Is budget brittle?

  19. Is budget brittle?

  20. Is budget fragile? Low by world and historical standards

  21. Net debt to GDP ratios, Ontario and various countries, 2009 Will peak at 8.3% in 2014 Victoria in 2009 3.7. In 2013: 6.4 21

  22. Is budget brittle? • Overall, finances are pretty sound • 2 caveats: • 1: Operating expenses/payments being squeezed by rising maintenance and depreciation and leasing costs of PPPs • 2. The property boom will bust! • Pallas will be in it for long term (two terms plus) • Will want to time his run • First budget should be conservative, focusing on paying for election promises • Setting things up for a more reformist second term

  23. Concluding thoughts • First budget of a new Labor government • That is comfortably in the centre, not the left • The goal is gradual repair of a “mess” • With emphasis on capital not recurrent spending • Creating longer-term stress on operating accounts, caused by mounting maintenance and leasing payments • With so much else to be done (ageing, justice, education, public service rebuild) • Bigger question: how to deal with disappointments • Don’t expect too much!

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