tax boom wasted by states

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    Tax boom wasted by states
    By Mike Steketee
    November 13, 2004

    CAPITAL spending by governments on hospitals, schools, railways and electricity has sunk to record lows, despite strong economic growth producing soaring revenues from stamp duties and the GST.

    The fall, revealed in Australian Bureau of Statistics figures released yesterday, means Australians will have to cope with substandard infrastructure for years before services improve.

    The states are using the money to reduce debt but also to fund large pay increases for public sector employees.

    The jump in nurses' and teachers' salaries alone will cost NSW taxpayers an estimated $500million this financial year, as the Government offered significantly more generous pay rises than other states. And the Carr Government also faces turmoil as railway workers demand a 25 per cent pay rise.

    Even though state governments and their trading enterprises have started responding to crises in transport and electricity by spending more on maintenance and replacing crumbling equipment, capital spending is still falling as a share of the total economy.

    Experts warn it will take years to reverse the neglect of infrastructure.

    "It may get a little worse before it gets better because there are some quite lengthy lead times required," Australian Council for Infrastructure Development chief executive Dennis O'Neill told The Weekend Australian.

    A report commissioned by the council estimates $24.8billion is needed for roads, rail, water, gas and electricity just to make up for infrastructure deficiencies to adequately meet present demand.

    he new ABS figures show capital spending by all levels of government - federal, state and local - falling from 5.2per cent of gross state product in NSW in 1994 to 3.7per cent in the middle of this year.

    The trend is similar in the other states. In Victoria, the figure is down from 4.1per cent to 3per cent, in Queensland from 5.4 to 4.2per cent, in South Australia from 4.2 to 3per cent, in Western Australia from 4 to 3.7per cent and in Tasmania from 6.9 to 5per cent. Only in Western Australia and South Australia has capital spending started rising in recent years.

    Part of the fall in capital spending by governments is accounted for by privatisation of government assets, such as electricity generation in Victoria, and private funding of road projects such as CityLink in Melbourne and the Sydney Harbour tunnel.

    But the bigger reason for the fall, according to a report by Allen Consulting last year for the Property Council, is because governments have moved from budget deficits to surpluses by reducing their capital spending rather than outlays for recurrent or day-to-day purposes.

    The result had been an under-investment in infrastructure, according to experts, who say the chickens are coming home to roost with problems such as failures in the train system in NSW, blackouts in Queensland and inadequate port facilities in Melbourne and Adelaide.

    Even ratings agencies such as Standard & Poor's now say state governments can afford a modest rise in their debt levels, provided it is used for high-quality infrastructure projects.

    Labor state governments have focused on sound economic management, in a reaction to the bad reputation Labor developed during the 1980s and early 90s after financial crises in Victoria, South Australia and Western Australia. But even Liberal politicians are now prepared to argue they have gone too far.

    The Carr Government in NSW has promised to reduce general government debt to zero by 2020. Opposition Leader John Brogden told The Weekend Australian a state Coalition government would review the debt elimination target and make it subservient to infrastructure investment.

    "(Treasurer) Michael Egan's manic desire to reduce debt to prove the Labor Government's financial credentials has been blind to the need to maintain basic infrastructure in rail, energy and water in particular," Mr Brogden said.

    "What is the use of having no debt and the worst rail system in the country? No business would say 'Let's eliminate our debt but run down our infrastructure'."

    In another reversal of normal politics, Victorian Opposition Leader Robert Doyle has pledged to use government funding to buy out the tolls on Melbourne's Scoresby freeway.

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