Myths and Mysteries In The State Mid Year Budget Update – Part 3

PART 3  – The Myth of Weatherill Not ‘Withdrawing’ From The Economy

As readers of this series will have noted, there is a substantial gap between the rhetoric of this Labor Government and realities when it comes to its financial management of the State.

In Part 1, (CLICK HERE FOR PART 1) we saw that no matter how many times the Government produces figures that show how things will soon be pointing in the right direction, since the GFC, Labor just doesn’t ever get there, whether out of malevolence towards the voters or just sheer incompetence. The classic case is cuts to the public service which get big talk but have never happened and any gambling person would do well to bet on their current program of cuts not eventuating either by the time of the election in 12 months (if you can find someone who will back what the government says.)

Then in Part 2, (CLICK HERE FOR PART 2) we ripped apart the spin that Government deficits are okay where the money is put to good economic use. There we showed that this State could have avoided having any increased debt since the GFC if it had simply not spent money on projects and people that add nothing to the local economy – think the Desalination Plant, Adelaide Oval and 10,000 surplus public servants.

This week we look at a similar piece of spin, the notion Premier and now Treasurer Jay Weatherill keeps promoting that his government will not ‘withdraw’ from the economy.

Weatherill’s Silent But Massive Withdrawal

Well despite the massive fear campaign drummed up at the merest hint of cuts (think this past fortnight’s brouhaha over funding for the police), the reality is that the withdrawal of the Government from the public that feeds it is already happening.


Using more data calculated from the State Budget papers it is clear there is a massive boil erupting around public servant jobs that will one day just have to be lanced.

In the last financial year, the Grants expenditure item – money returned to the community for all manner of projects and purposes was $3.18 billion. But by 2016, the Government projects this will have decreased to $2.87 billion. That’s a 10% decrease.

Meanwhile, the expense of employing public servants is going up by roughly the same amount. Put another way, in 2012, for every dollar of PS wages incurred, 50c would be delivered to the public by way of grants. By 2016, the return drops to below 40c.

What is truly frightening is that from the high water mark of grants to the community of 2010, the annual level of grants drops by $700m by 2016 (56c for every public service wage dollar to 39c – about 30%) but the public service expense just keeps on going up and up.

Weatherill and Snelling before him like to crap on about their ‘5% efficiency dividends’ they are targeting. But efficiency ought to be measured by keeping this ratio about constant instead of ‘nickel and diming’ (where it actually hurts) but ignoring the waste in the public service itself.

So that’s why ‘financial discipline’ associated with proposing to do stuff like shutting down the Cadell ferry and not funding the Keith Hospital looks so silly. But now you have decisions made in a blind panic that will further erode our economic base such as closing a number of the State’s trade offices and the Education Adelaide entity. These guys actually produce income for the state but in Weatherill’s Wacky World, they are a line item that cutting makes him sound tough about.

Capital Expenditure

After managing a capital expenditure program of around $750m pa until 2008, spooked by electoral fears, capital spending took off with the high water mark being the 2010 year (which, guess what, happened to be an election year.)

Then the capital budget had blown out to $2.1 billion but by 2015, Weatherill supposedly under his policy of not withdrawing from the economy is reducing that back by about 50% to $1.2 billion (remembering none of this includes the new RAH). Meanwhile to fund things like the Desalination Plant and the Adelaide Oval asset sales of things that do produce income (the forests, the Lotteries Commission) are being sold off.

Total Withdrawal

So, on these two items alone, compared with 2010 by 2016 there will be a reduction of around $1.75b, representing a massive 10% of the State Government budget. That is, while Weatherill talks of not withdrawing, in truth he and his Government are proposing shrinking what it spends out in the community by 10%. This is very likely the greatest contraction (‘withdrawal’) of government in the nation’s history!

So where is this money going or not going?

One place is into the bank accounts of the lenders to the State Government for its various follies. Between 2010 and 2016, interest expense will have gone up $470m – that is a new Adelaide Oval development (or hospital, concert hall, deep seas port facility etc etc each year) – and all of that is leaving the State having been racked up on dopey, self-indulgences. After 2016, the annual $300m+ bill for the new Royal Adelaide Hospital kicks in on top of that. So, in 2017 our annual interest bill will exceed $1b per annum, up three times in a good deal less than a decade.

Just think about that – $1b a year. Just think about what that could for youth unemployment in the northern suburbs or similar and which by 2016 will be heading into the coffers of banks in Melbourne or London or New York.

‘5% Efficiency Improvements’

So long as the Opposition continues to indulge the Labor Party and the media in talk of about ‘cuts’ to the public service and ‘loss of front line services’ it will continue to flounder. The real debate needs to centre itself not on the size of the government but the scope of the government – that is, what can now we afford to be doing, rather than assuming what we do now is right (and then try to get more blood from a stone through ‘efficiency’ (in the public service? – give us a break.)

Because, for every new piece of legislation or regulation, those laws need to be implemented, monitored and enforced. The debate now needs to be about getting government out of our lives, focusing on what is really important and giving back some portion of the reductions in the bureaucracy involved to the people who carry the can (while former Premiers enjoy their retirement in London.) To take up the thoughts of David Penberthy in last week’s Sunday Mail, do we need five police wandering aimlessly with guns around the Glenelg foreshore on a Tuesday lunchtime or should we be focusing those resources on the blow out in bikie related crimes and misuse of guns?

Only time will tell if the Liberal Party will tweak to this because the contortions they are currently getting themselves into are not going to help get them elected and play nicely into a Labor Party / mainstream media axis of propping up the status quo.

In Part 4 – The Real State Debt

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