Wednesday, November 12, 2008

NSW Mini Budget Offers Pain Without Purpose

The New South Wales mini budget has confirmed once again that the government simply doesn’t understand what it’s doing. Filled with fear at the idea of a billion dollar budget black hole, they have desperately clutched at straws to fill that hole and return the budget to surplus as quickly as possible. The trouble is that it won’t work.

The role of government as a money manager is two fold. First, it must manage its own money responsibly to ensure that it can continue to function and provide the services upon which the community depends. Second, it must manage the economy so that the community can prosper. One is not more important than the other, and both are interconnected.

This mini budget is doomed to fail on the basis that it has been drawn up to address the first responsibility and boost the budget bottom line, at the expense of the second responsibility by increasing taxes and charges while cutting spending and investment. The fundamental flaw in this approach is that the added drag on the economy will serve to undermine the ability of the community to pay those increased taxes and charges.

While the government might seek to blame their circumstances on the Global Financial Crisis, the truth is that they were already in trouble and the global situation has only amplified it. More importantly, the impact of the global situation on the broader community is the very reason why the government should be more focused on boosting the economy than boosting their own revenue. That way, a stronger economy will provide them with stronger revenue anyway.

Instead, we have the exact opposite. At a time when the Federal Government is trying to pump money into the economy to prop it up, the New South Wales Government is trying to suck more money out of the economy to prop itself up. Yes, there are enormous challenges for New South Wales, and the Global Financial Crisis has made it more difficult. But that is the very reason why the State Government should be investing in road and rail infrastructure, public transport, and providing real incentives to the property and construction sector, not with handouts, but with abolishing ridiculous and excessive levies and charges.

The obstacle is that this would require the courage to accept a budget deficit and to take on appropriate debt to provide the infrastructure which would in turn provide the framework to encourage more investment in the state. The Government talks about taking the tough decisions, but that is not what they have done. They have in fact taken the easy way out and dumped the cost on Mum, Dad and the kids.

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