Signs Of Lessons Learned

Newcastle Herald

Wednesday June 20, 2007

By BILL MITCHELL

FOR years, the State Government has pushed the neo-liberal dogma that state borrowing is evil. Public Private Partnerships (PPPs) were considered essential to fund large capital projects despite evidence that they waste public funds.

Last year's election budget saw a change of tack. The forecasted deficit was part of its plan to revitalise public infrastructure and state borrowing was recognised, once again, as being consistent with responsible economic management.

The Government won this year's election on the promise that it would continue to redress its previous neglect of infrastructure and services.

Yesterday's state budget was its first examination. My assessment is mixed but leaning towards the positive.

Over the next four years, public capital expenditure will grow significantly and be funded by increasing state debt. This is part of the Treasurer's plan to "retool the state's infrastructure" and exceeds expectations. The days of public infrastructure neglect may be over.

The spending will especially help regional areas where labour under-utilisation remains high.

The Hunter will benefit in many ways, including the Tourle Street bridge replacement, improved rail services, better hospital and educational infrastructure, improvements to the Pacific Highway and enhanced water infrastructure.

The two big budget items, health, being 28 per cent of total outlay, and education, at 23 per cent, received real spending boosts.

Significantly, less emphasis is being placed on the once-fashionable but wasteful PPPs. The Cross City Tunnel meltdown has taught the Government a lesson. This is welcome.

Unfortunately, the Government has failed to address climate change significantly.

First, a large slice of the capital budget will go to upgrading electricity generation capacity.

Why not try to reduce demand? Demand management approaches have proven highly successful in California and have reduced the need for more power stations.

Second, more dollars will go into roads than into public transport. Reducing the reliance on cars and improving mass transit systems would have been more appropriate.

The high risk area for the Government is in its assumption that interest rates will remain unchanged over 2007-08.

The financial markets have already factored in rises amounting to about half of 1 per cent. If they are right and the Government wrong then the budget position will deteriorate as economic growth and revenue falls.

Professor Bill Mitchell is director of the Centre of Full Employment and Equity at the University of Newcastle.

© 2007 Newcastle Herald

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