Thursday, December 11, 2008

Victoria must position itself to dodge NSW fallout

Anyone who was living in Victoria in the early 1990s understands the pain of a severe economic recession.  Its severity was largely the result of the incompetent Cain/Kirner governments.  The Kennett government imposed harsh medicine, reversing the problems and creating a renewed Victoria.

Now, Victorians should look at NSW and be concerned.  There's an economic downturn in NSW created not just by an incompetent government but by a Government plagued by scandal and corruption.  They're in denial about the scale of the problems and there's no trigger for change.

Even before the global financial meltdown, NSW had entered a recession.  This happened around mid-2008 and now it's deepening.  Take retail sales.  If NSW is excluded, national retail sales have been healthy all year.  NSW has been in steady decline.  NSW unemployment is rising, whereas the rest of Australia is still steady.  A housing collapse in Sydney's western suburbs locked in some time ago.  NSW is significantly distorting the national economic picture.

The problem is government-created.  The Victorian Cain/Kirner administrations were incompetent but generally honest and uncorrupted.  The NSW Labor machine is absolutely different.  It's a pit of corruption with sex scandals ripping through the ministerial ranks and corruption and dirty deals embedded within the state public service and local councils.

It's all public.  The NSW Independent Commission Against Corruption is overloaded with work.  New scandals emerge regularly.

The NSW budget is out of control.  This year's planned modest surplus disappeared to become a near-$1-billion deficit.  But there's an accounting trick.

When the same cash accounting standards are used that the Commonwealth uses, NSW actually budgeted for a $6.2 billion deficit in 2007-08.  They hide the truth.  The true accumulated cash deficit between 2004-05 and 2006-07 is $8.9billion.

The NSW budget has been on a Cain/Kirner deficit trend for some time but the Government denies the scale of the deficit.

The former NSW Labor premier and treasurer, who were effectively sacked by NSW unions a few months ago, tried to apply some Kennett-like medicine.  Their proposed sale of electricity generation was rejected, triggering their sackings.  The planned sale could have brought cash for urgently needed new power generation and eased the budget pressure.  That's now dead, as are long overdue reforms to infrastructure such as the train and ferry systems.

The whole system of government in NSW needs a major overhaul if the economic direction is to go from negative to positive.  But the NSW Government is dysfunctional to an extent that is hard to imagine.

Effectively, NSW is not being governed as a parliamentary democracy.  The NSW Parliament gives the Government the trappings and appearance of democracy, but it is the powerful networks outside Parliament that exercise the real authority.

The NSW Labor machine's reach beyond Parliament is substantial.  It decides which MPs are ministers.  It effectively sacked the former premier and treasurer.

It controls a vast network of non-parliamentary, public service oversight committees giving it effective control of the functioning of government.  It's out of this process that the corruption emerges because public service integrity has been mostly neutered.

The consequence is an ossified form of government that functions to protect and fund entrenched interest groups.  This prevents hard budget decisions being made or structural reforms being implemented.  Inefficiency is endemic.  It causes economic decay and has induced a NSW homespun recessionary trend.

And to this can be added the rolling global financial crisis.  NSW is the financial hub of Australia.  Job losses in the finance sector are hitting hardest in NSW.  The scenarios are bad and becoming worse.  NSW constitutes about one-third of the Australian economy.  The NSW Government is causing a NSW downturn.  Collapsing tax revenues and the financial crisis are making the situation worse.

The Government is not in control of its own operations, let alone capable of correcting the corruption.

Reform is impossible.  The next NSW election is fixed for March 2011.  The most likely and unfortunate prediction is that NSW will continue to slide deeper into recession.  It happened in Victoria less than 20 years ago and the signs in NSW are worse now than they were then in Victoria.

This is not a situation over which Victorians gloat.  Silly rivalry is irrelevant.  Victoria benefits from a strong NSW.  But given current observations, Victoria needs to have strategies to protect itself from the inevitable economic spillover of a quickly declining NSW.


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