By Peter Boyle
MELBOURNE — In the last days of the Kirner Labor government of Victoria, the report of an independent review of the state public sector's finances (the Nicholls Review) was released. While the media made much of its finding that the government had a serious financial problem — thus setting the scene for Kennett's landslide victory in the October 13 state election — the Nicholls Review's analysis of the causes of the problem, which implicated the federal Labor government, was ignored.
State Labor politicians have kept silent because they did not want to embarrass the Keating government — especially before March 13.
On the other hand, the Kennett Coalition government selectively used the Nicholls Review findings to sell the public the notion that Victoria faced a "debt crisis" because the Cain and Kirner Labor governments had gone on a spending binge and were financially incompetent and irresponsible. Victorians have to shoulder $7000 a head in state debt, Premier Jeff Kennett has claimed in an attempt to justify his horrendous cuts to education, public transport, health, welfare and even emergency services.
But Kennett's claim that Victorians have to sacrifice to reduce the state's debt (estimated variously to be anywhere between $28 billion and $33 billion) is failing to convince many because his government is intent on borrowing $2.5 billion just to finance redundancy packages for the 30,000 jobs it wants to axe in two years.
Labor politicians and some commentators have noted that the state's debt, measured on a per capita basis or as a proportion of gross state product, is in fact smaller than it was in the early 1970s, when Liberal governments ran the state. The "debt problem", they suggest, is a myth, and the state's financial problems are exaggerated. The state debt in both Tasmania and the Northern Territory is bigger as a proportion of GSP than in Victoria, they note.
However, the Nicholls Review did point to a serious financial problem — a "structural deficit" on the order of $1.5 billion. This means that the state's revenue is failing to cover its expenditure by about $1.5 billion a year. Every year since 1986-87, the state government has had to borrow just to keep going, a situation that is bound to get worse because, as the state's debt rises, so does the cost of servicing the debt. Debt service now takes up 16% of the state's revenue.
The Nicholls Review identified three main causes of the structural deficit:
- a reduction in funding from the federal government which collects most tax;
- the early start to the recession in Victoria and the disproportionate effect of federal Labor's tariff cuts on Victoria, Australia's major manufacturing state;
- serious financial collapses brought on by the federal Labor government's deregulation of the financial sector.
Each of these is a direct result of the "economic rationalist" policy followed by federal Labor governments. Victoria's structural deficit is largely made in Canberra.
First as federal treasurer and then as prime minister, Paul Keating has imposed austerity on all state governments for a decade. According to Labor federal backbencher John Langmore, in the last decade the federal government (which has a monopoly on income tax) has cut payments to the states by 25% in real per capita terms.
The Victorian Council of Social Service (VCOSS), in its analysis of the Kennett government's latest cuts, also indicts the federal Labor government for having "compromised the capacity of all state governments to adequately meet their responsibilities to the community".
In the last decade, says VCOSS, grants to states have declined by $3.4 billion in real terms. As a result,
the states face a combined annual deficit of $7.3 billion this financial year. Federal Labor governments have cut payments to states in order to deliver hefty tax cuts to the wealthy and to big business (the mining multinational CRA boasted recently that it stands to gain $130 million from Keating's latest cut to the corporate tax rate).
"The effect of these policies", said VCOSS, "has been to reduce the overall reliance on the more progressive revenue measures available to the Commonwealth and to increase the reliance on the more regressive and inefficient revenue measures available to the states".
In short, federal Labor has imposed its policy of income redistribution (in favour of the wealthy) via austerity carried out by state governments. Keating's vociferous attacks on Hewson's Goods and Services Tax (GST) plan was hypocritical because he has forced a greater use of state-levied regressive taxes.
State Labor politicians have had to acknowledge the federal government's cuts in funding to the states but they have done so in a shamefaced and dishonest way.
For example, in his response to Kennett's latest cuts, Victorian opposition leader Jim Kennan was quick to point out that since 1984-85 Victoria has "subsidised" less populous states by $7 billion because of the ending of fixed tax-sharing arrangements. The suggestion is that part of his "solution" to the state's revenue problems is forcing the smaller states to carry a bigger burden of austerity.
While complaining that federal tariff cuts have unduly prejudiced Victoria, which has 51% of the national turnover in the embattled clothing and footwear industry and 48% of textile industry turnover, Kennan has not confronted Keating's publicly announced determination to proceed with the tariff reduction program despite the lack of alternative employment for the workers affected.
Kennan also shares Kennett's commitment to smaller government — only he wants to spread the pain over four years rather than two, he recently said on ABC
Radio. However, Kennett is not a total idiot. He knows that he will need time to regain some popularity if he is to have any chance in the next state elections. Hence it suits him to bunch the cuts early in his term, regardless of the pain this will cause to the community and the environment.