Shannon Deery: Victoria’s budget is built on shaky assumptions — reality will eventually bite
There is no grander Spring St spectacle that the state budget, complete with disappearing deficits, breathtaking spending and all manner of fiscal illusion. At some stage reality will bite.
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Step right up, the grandest of annual Spring St spectacles is back: the fiscal illusion that is the state budget.
Under the dazzling lights of the parliamentary big top cue the smoke and confetti for the latest in smoke and mirrors mastery.
Treasurer Jaclyn Symes will take centre stage for the first time this year with a bag of tricks set to wow Victorians.
First will be the magical disappearing deficit.
Yes, as promised the government will announce a return to surplus next year of $600m.
No need to peek behind the curtain and realise that’s $1bn down on estimates from just six months ago.
With a wave of the wand and some creative accounting the surpluses in future years will now dwarf what we had previously expected, too.
So we couldn’t get next year’s surplus right — only a billion dollars out — but somehow we should believe projections two, three and four years away?
Next comes the amazing appearing programs.
We might have no money, but watch what Symes the Magnificent can pull out of her hat.
We’ve already got $318m for free public transport for kids, $1bn for road maintenance, and huge cash injections for major projects.
Only in Victoria could you expect free debt-funded train rides while the government funds a $35bn underground rail tunnel through debt.
Speaking of, we should probably expect a few billion for the Suburban Rail Loop, and serious money for health and education would be prudent.
Watch closely for brand-new schools, shiny roads, and gleaming hospitals materialise from thin air, all funded without raising taxes!
Symes promised on Monday there would be no new or increased taxes — cue the applause — save for the hugely unpopular new fire services tax which passed parliament last week.
Which brings us to the next trick, the shell game of spending.
Now you see it, now you don’t, as funds are shuffled around with lightning speed making it almost impossible to pick the one with the real increase.
The magician assures us it’s all there and better than ever, but as the Parliamentary Budget Office has warned for years now, comparing budgets year on year is nigh on impossible.
And for an impressive finale: the future forecast crystal ball.
We’ll be told everything is getting better and debt is coming down as per cent of the economy, even though it will go up in real terms.
Surpluses will grow and grow, the economy is in great shape, and everything will be wonderful.
Because in the magical world of government budgets, everything and anything is possible — especially if you don’t read the fine print.
Contained within that fine print will be the built-in projections and assumptions the entire budget is built on.
Budget forecasts are, at best, educated guesses.
At worst, they’re politically convenient illusions.
It is those projections and assumptions that, when wrong, cause the budget to become a work of fiction.
Take the public sector wages bill which has blown out by almost $17bn since Labor came to office in 2014.
Year on year the government has consistently underestimated the cost of its government expenses meaning, on average, it has had an extra $1.8bn every year to pay its wages.
At the same time, the government overspent its own budget forecasts by an average of $14bn a year.
That’s $31bn in wrong projections in 10 years.
In the same time, capital spending had ballooned by 18 per cent each year, far outpacing population growth and revenue.
And operating expenses growth had averaged around 7.2 per cent despite recent projections forecasting spending growth of just 0.2 per cent.
Those who will be reading the fine print will be the credit rating agencies who have repeatedly warned Victoria is facing a historic downgrade.
Already the worst-rated state in the nation, a further downgrade from our AA status would be a massive blow to the economy.
Agencies want to see a commitment to controlling operating costs and stabilising debt levels which will rise, albeit fall short of hitting the $200bn mark.
A downgrade in credit rating will translate directly to higher borrowing costs, undermine investor confidence and spook financial markets.
Every year, like clockwork, the budget is unveiled with the usual pomp and carefully orchestrated optimism.
Then reality hits.
Either way, the show must go on.
Shannon Deery is the Herald Sun state politics editor
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