NSW Labor budget built on hope, not experience

MANY things have changed over the past 12 months, since Michael Costa delivered his last budget, to alter NSW's financial circumstances. The global financial crisis has altered the outlook on many fronts. As downward revision has followed downward revision in profit and growth forecasts across the world, NSW has felt the effects. Revenue is down an expected $10 billion over four years from what was forecast last year.

Following the current year's unexpected deficit of $1.3 billion, the projected 2009-10 budget deficit is estimated at $990 million. But though much has changed, one thing has not: the Government is still finding it hard to get its own employees to stick to the 2.5 per cent wage rise target, which ensures that expenditures do not grow faster than revenues. The Government has provided in this budget for rises of almost twice that. Efficiency improvements have supposedly been demanded in return for any extra pay rises - but do they exist?

To restrain its expenses, this budget has come up with what it calls a "Better services and value plan". The wages cap is part of it, as is the reorganization announced by the Premier last week, under which 160 state government agencies will amalgamate into 13. The plan also envisages streamlining certain common functions such as legal services and computing, and a series of audits of expenditure and procurement practices. A lot depends on this program.

The budget is expected to return to a modest surplus in 2011-12 of $86 million on the assumption that the program's efficiency dividend sees savings of about $300 million a year. Given that the Premier has promised the reorganisation will not involve job cuts, the size of the assumed savings shows the Government is not lacking optimism.

To compensate for the global downturn, the Government is adjusting its strategy: borrowing much more to fund an expanded infrastructure program. The spending on capital works is at a record $18 billion in the coming financial year. By no means all of this is at the State Government's expense: the Federal Government has pitched in with large amounts of cash in the various stimulus packages it has announced.

 Education is where Canberra's handouts are having the biggest effect. Of the $2.6 billion to be spent on capital works in schools, including buildings and equipment, about $1.8 billion comes from Canberra, enabling spending to increase more than three times over 2008-09. Of the much vaunted record roads budget of $2.5 billion, $420 million comes straight from Canberra, and another $877 million will be spent on jointly funded projects