NSW Budget: Infrastructure everywhere to absorb cash deluge

By Julian Bajkowski

June 20, 2017

NSW Treasurer Dominic Perrottet delivers the NSW State Budget to the Legislative Assembly at NSW State Parliament in Sydney, Tuesday, June 20, 2017. The NSW Government has announced a massive $4.5 billion budget surplus for the 2016/17 financial year. (AAP Image/Dean Lewins) NO ARCHIVING

If deficits yawn, surpluses surely roar and the torrent of cash now flowing through the 2017-18 New South Wales Budget is simply deafening.

Doubling down on a combination of stamp duty from property transactions and asset privatisations (or recycling as econocrats prefer to characterise it), Treasurer Dominic Perrottet’s first budget has delivered a $4.5 billion surplus (2016-2017), even with continued mega-investments in infrastructure renewal.

“This is the happiest day of my life,” Perrottet said. “This Budget is the envy of the western world.” When you have that much money, winners can be grinners even if there is a conspicuous effort to appear just a little humble.

While well telegraphed in advance, the size of the latest surplus still managed to exceed previous forecasts by around $500 million, a figure helped along by controversial privatisations like the NSW land titles registry.

And unless there is a sudden crash in the housing market, it’s blue sky until after the next election too (March 2019), with Perrottet  forecasting surpluses to continue “as far as the eye can see” with the sugar-rush surplus of $4.5 billion for 2016-17 gliding to $2.7 billion in 2017-18, followed by average surpluses of $2 billion out to 2021.

Perrottet said the “secret sauce” of the state’s rude financial health stemmed from its strong program of asset recycling dubbed “Restart NSW”.

The extra cash, the Treasurer maintained, has allowed massive investment in both renewed and new infrastructure that spans across most sectors but especially construction, transport, health and education.

In simple terms it’s the NSW real estate and construction boom, which some economists fear is at bubble-like proportions, that just keeps on giving to Treasury and thereby allowing big increases in projects like hospitals, roads and public transport that in turn fuel jobs growth. Growth begets growth, and the concerted attack on the NSW infrastructure backlog is turbocharging that effect.

The cash splash cheat sheet broadly looks like this:

  • Infrastructure spending hits $72.7 billion over the forward estimates;
  • $7.7 billion of that money is being ploughed into new hospitals and regional health centres;
  • Total investment in hospitals hits $23.2 billion in 2017-2018
  • Education scores $15.7 billion with $4.2 billion worth of capex on new schools or school refurbishments.
  • Transport and and roads investment hits $41 billion
  • $7.2 billion on (toll) roads including the Pacific Highway, Westconnex and M4-M5 link
  • $1.8 billion on sports arts and culture courtesy of a $1 billion reservation from selling the Land and Property records business
  • A $4.3 billion ‘housing affordability’ package already announced by Premier (and former Treasurer) Gladys Berejiklian as a signature policy.

Meanwhile, the state government’s projected “negative net debt” has hit -$7.8 billion.

“New South Wales has the highest net worth of any state,” the Treasurer said. “Assets are increasing, not decreasing.”

One of the stronger themes to emerge from Perrottet’s first budget is a more muscular position that shows the heat of Sydney’s housing, construction and infrastructure boom is spreading its warmth throughout the state.

It needs to, as well, with pressure on the housing market and stretched mortgagees already producing some signs of distortion at the margins including empty land-banked apartments and a flurry of applications to build million-dollar bedsits disguised as boarding houses in some councils.

The government now puts growth in construction at 14% over the last 12 months.

Perrottet’s stance is that while there’s always concern over housing affordability, a buoyant economy in NSW has “created nearly 40% of the jobs” in Australia recently. While part of that obviously comes down to population density — the same density that is prompting new school and hospital builds — the increase in state wealth is being shared around, especially in the regions. He said 40% of the NSW 40% contribution was coming from regional areas.

Again, in the regional areas it’s largely infrastructure to the rescue as schools, hospitals, roads — all the things that regional electors complain and change their votes over — get the full treatment with literally hundreds of individual investments ranging from $46 million to up broadband and internet connectivity in schools, to $20.1 million to “transform” 24 motor registries into Service NSW one-stop-shops.

In many ways the modest sum of just $20.1 million dedicated to broadening the Service NSW offering in regional communities is the real bedrock of Perrottet’s re-thinking about service delivery and getting value from it, especially after he was Finance Minister.

The strong focus on reducing the number of customer-to-government touch points and interactions is still being deliberately decreased, partly through technology-driven capability but also through systemic changes that require agencies to work better together and automate and de-duplicate processes and efforts where they can.

A significant revelation in the NSW Budget papers is that “the number of non-frontline staff fell by 10,658 FTE’s” between 2011 and 2016. At around 2000 staff a year, off a workforce that’s now more than 326,000, it’s an easing that’s unlikely to cause to much conspicuous disruption.

At the same time the Budget papers juxtapose the back-office reduction figure by pointing out that 7344 new “teachers, nurses, police offices and other frontline staff” were added over the same period.

The wages bill for governing NSW came has come in at $35 billion in 2016-17, but is forecast to rise to $37.9 billion in 2018-2019 and then tip $40.2 billion in 2020-2021.

It is understood that part of that rise comes boosted frontline headcount and also from new calculation methods being used in the budget for the first time.

Either way, public sector wages still account for around 47% of government expenditure in NSW, even with a wage rise cap of 2.5% per annum enforced since Labor lost office.

It’s understood that the calculated saving from the cap are more than $4 billion since 2011, savings Perrottet argued could be reinvested in “teachers, nurses and coppers”. Trades Hall might not like the rhetoric, but unions aren’t likely to eschew the new membership either.

However, NSW agencies will cop a further hit courtesy of a steep hike in the efficiency dividend which now jumps from 1.5% in 2016-2017 to 2% for three years from 2018-2019.

That’s half a per cent. And half a billion dollars. Ka-ching.

Perrottet made no apologies for the efficiency hike, and emphasised it was incumbent on all departments and agencies to constantly look for new ways of working more efficiently in the interests of the state’s taxpayers.

Based on the projected wages bill, there seems little if any prospect of mass redundancy rounds. The reality is that technology based efficiencies are increasingly automating clerical and manual tasks and delivering a productivity windfall in the process.
With an election within sight, Perrottet is salting away those savings for when the housing market may not be as rosy.

There have certainly been far worse budgets to deliver and he knows it.

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