By Peter Boyle
It is our debt, the mainstream media tell us. Every Victorian owes $12,640 (or more) as their individual share of the state government's debt. In his most conciliatory moment, Premier Jeff Kennett said he understood workers' concern about the new industrial relations laws, the removal of holiday leave loading and job and service cuts. But don't blame me, he said; the deficit made me do it.
Kennett knows that his strongest card is the widespread public concern over the Victorian government's $28 billion to $32 billion debt (depending upon whose accounting you believe). But whose debt is it? And should working people be made to bear the pain?
Most people accept that governments should carry some debt, on the understanding that investments in power supply, transport, water supply, sewerage and so on will benefit future generations, and so it is fair that the cost be spread over those generations. But over the last few years the mass media, big business and Labor and Liberal politicians have been sounding the alarm over "Victoria's debt problem".
The former Kirner government axed 10,000 public sector jobs, cut services and went on an asset sale and privatisation campaign, supposedly to tackle the "debt problem". But the debt still went up by at least a couple of billion dollars. Now Kennett has come in promising to go harder at it, because Labor failed. He's promised to slash another 7000 jobs by next June and at least another 12,000 later. Meanwhile unemployment in Victoria is 11.8%.
We are encouraged to reach the conclusion that the state public sector is overstaffed by about 30,000 and that this is the cause of the dreaded debt problem. Some 70% of recurrent state expenditure is on wages, so if the only solution to the "debt problem" is to cut spending, jobs will go.
But a little-reported study of the state debt by Michael Salvaris, a former adviser to the Cain government, revealed last year that state government debt was only 28.3% of the state gross domestic product in 1991, half the level it was under the Bolte Liberal government in 1960. Debt as a proportion of state GDP declined through most of the last 30 years, but started to rise again in the mid-1980s.
The real crisis, he argued, was not the scale of the debt
(although it cost 25% of last year's revenue in interest payments alone) but the fact that Labor and Liberal governments were determined to cut taxes and charges on business and pursue small government at any cost, as urged by the New Right.
In addition, the state has been slugged with $4 billion as a result of the collapse of the Tricontinental Merchant Bank, the State Bank, the Farrow group of companies (including the Pyramid Building Society), the Victorian Economic Development Corporation and the Victorian Investment Corporation.
These collapses were a direct result of the explosion of asset speculation in the late 1980s and so were an expression of a real debt problem — the big business debt orgy. According to a 1991 study by the Economic Planning Advisory Council, private business debt reach $330 billion in June 1990 — 90% of Australia's GDP.
Despite the downgrading of Victoria's credit rating by the US- based Moody, there has never been any doubt about the state repaying its debts. The same could not be said of many of the private debtors of the 1980s. So far about $7 billion of an estimated $30 billion of dubious loans have been written off by local banks. Foreign lenders carry another $135 billion of Australian private sector debt, and there are no figures indicating how many of these are bad loans.
The real debt problem, in the private sector, has impacted on the Victorian government's finances in other ways beside the obvious bail-outs. The collapse of the asset boom made a big hole in state revenue, dependent as it is on indirect taxes and stamp duties, which fall dramatically in recessions. According to the Reserve Bank, the collapse in the construction, finance, property and business services and the wholesale and retail sectors were greater in Victoria because all these industries grew more rapidly in this state in the 1980s: bigger boom, bigger bust. In 1988-89, one in three bankruptcies in Australia took place in Victoria.
Eager to help big business in the 1980s, the Labor government initiated, subsidised and guaranteed several large construction projects. Many of these have since been exposed as blatant rip-off schemes. The Portland smelter has locked the government into a subsidy to Alcoa which could cost $2.4 billion over the next 20 years, and which has added more than $200 million a year to state debt over the last two years. The World Congress Centre, a white elephant on the sleepy end of Flinders Street, cost the government another $500 million and $149 million of new but hidden debt last year. Then there was "Bayside", a grand waterside development project in Port Melbourne into which the government poured $70 million. The deal with Sandridge, a private
developer, provided for the government to recover only $14.3 million, according to state auditor-general Ches Baragwanath.
As many of these projects turned sour, the Kirner government tried to cover its blunders by shuffling debt and employing "creative" accounting. It stepped up its asset sale and privatisation program, but this dug it into an even deeper hole.
It sold off public transport rolling stock and then leased it back for $422 million a year. Staff cuts made the public transport system less reliable, and patronage plummeted, increasing its losses. Lease-backs of office accommodation cost $775 million last year; privately funded police stations and courts incurred lease commitments of $168 million a year.
Asset selling and privatisation in the fire-sale conditions of an extended recession were disastrous. The profitable State Insurance Office was sold at a loss. The US company Mission Energy got control of the state's newest power plant for a bargain. Numerous buildings were sold for a song, sometimes with lease-back arrangements which guaranteed to return the purchase price to the new owner in a couple of years! Even bigger schemes were in the offing before Labor was voted out in the October 3 landslide.
But if the Labor government was guilty of anything, it was slavish commitment to helping big business turn a profit. Much of the confusion about the real state of the government's finances arises out of complex manoeuvres by the small clique around Kirner and her treasurer Tony Sheehan to keep the deals with business rolling on, to slip through federal borrowing limits and to keep the truth even from the dwindling ranks of the Labor Party.
In his first month in office, Kennett has been only too happy to use Kirner's unsavoury record to cover his naked attacks on workers' rights, public services and public property. But if he had been in government in the 1980s, he would have done much the same as Labor. Despite all Kennett's bluster about Labor's deals and debt, precious little new information is coming out.
It was big business that benefited from Labor's "mismanagement". Now Kennett wants to make us pay what should be big business's debt.