Tuesday, December 02, 2014

Memo to Abbott. Mess with Victoria and you mess with the nation

Here's a tip: Tony Abbott won't make good his threat to rip $3 billion out of Victoria's economy.

Before the election he said the money promised for the East West Link would vanish if an incoming government used it for any other purpose.

"I want to make it absolutely clear to the people of Victoria that the $3 billion the Commonwealth government has committed to this project is for one purpose and one purpose only - and that is to build East West Link," he wrote to both Dan Andrews and Denis Napthine. "If a future government is not prepared to spend the money on East West Link, then that money will not be forthcoming."

Such a decision would shrink what Abbott repeatedly calls the biggest infrastructure investment program in Australia's history. And it would shrink it in the state where he needs to spend the most.

Victoria accounts for more than one-fifth of Australia's economy. No other state, apart from NSW, produces more. Yet in the past six years its output per person has stalled. Victoria produces scarcely any more per person than it did in 2008.

Victoria's construction industry stood still in 2014. Over the year to September it grew just 0.7 of one per cent. No other state performed as badly. The NSW construction industry grew 19 per cent.

To withdraw a promised $3 billion from Victoria's construction industry (half for East West Link stage 1, half for stage 2) would be to deny a boost to the state that needs it the most, and to deny a boost to the national economy in the process. Abbott himself said building the East West Link would create almost 7000 temporary jobs.

There's every reason to believe that Melbourne Metro would create as many jobs. It is the purpose for which the $3 billion was originally intended before Abbott diverted it into roads...

On Sunday his language softened. He said merely he was determined to do what he could to ensure the East West Link proceeded.

Melbourne Metro would do far more for Melbourne than would East West Link. That must be what the cost-benefit statements show, otherwise Napthine would have made them public. When Andrews makes them public in a matter of days Abbott will have to explain why he was determined to lock Victoria in to the least beneficial of the two projects.

He is granting money to every Australian state for a major infrastructure project. In NSW it is WestConnex, in Brisbane it is Gateway Motorway North, in Adelaide it is the South Road upgrade and so on. In every case it is money collected from the citizens of those states via taxes.

It is inconceivable that he would damage the national economy by leaving out the one state that needs it, especially when it was he who dubbed the election "a referendum on the East West Link".

And here's another tip: Abbott and Joe Hockey as good as wrote off Victoria during the campaign in order to salvage their budget. And not in the way you might think.

It would have made political sense to ditch the Medicare fee increases and the bulk of the changes to university funding before or during the election campaign. They weren't likely to get through the Senate.

Instead they, kept them as government policy to tide them through to an event they believed was more important than the Victorian election - the release of the Mid-Year Economic and Fiscal Outlook on December 16.

If those programs are still regarded as government policy Abbott and Hockey can include them in the statement as zombies - neither alive nor dead. They can book the best part of $5 billion they would have raised from them even if it won't come near the budget.

As shadow treasurer, Hockey, every budget night, was keen to distribute a very useful document detailing the accounting tricks Wayne Swan had used to forecast yet another unlikely surplus.

This year he'll be the one using accounting tricks if he persists in booking the income from zombies. He might as well. The Coalition denied Napthine a lifeline so that he could.

It will fool no-one of course. Budget analysts will simply add the best part of $5 billion to whatever deficits he forecasts for the next four years and mark him down for trickery, like they marked down Swan. Even without the zombies the budget update is looking horrific.  

The ABC reports the Treasury will use an iron-ore price of about $60 a tonne. The budget itself was struck when the price was $103. Deloitte Access says even with the zombies this year's income will be $2.3 billion worse than the budget forecast and next year's income $7 billion worse.

Most of it will be due to the impact of a lower iron-ore price on company profits and tax receipts. But not all.

Disturbingly, Deloitte notes that "whereas once the red ink was mostly confined to the profit taxes, the combination of wobbly job growth and an extended period of weak wage gains now looks like being just as big a budget buster". Income taxes are set to fall short of budget estimates by $2.9 billion this financial year and $4.2 billion next financial year.

Victoria's jobs growth is close to the weakest in the nation. In the past year Victorian employment has climbed by less than 0.5 per cent, about half the weak national growth rate of 0.9 per cent.

In The Age and Sydney Morning Herald