After 10 years governing NSW, a tick for the Coalition as economic managers - SMH - Percy Allan, Public policy economist - 25-Mar-21
For an outfit criticised as having too many bankers and not enough economists in its ranks, the NSW Coalition government has presided over an economy that has done remarkably well over the past decade. And as for the limitations of state economic management, I’ll say this about the state economy: you’ll know it when it’s handled badly.
Most striking about the NSW economy is that it has held its share of the national economic cake, or GDP, at almost 32 per cent over the past 10 years while in the previous decade it had dropped from over 36 per cent. Also, it increased its output per person relative to that for all of Australia by 3 per cent whereas previously it had fallen by 9 per cent.
So, at the macro-level, the NSW economy matched Western Australia and outpaced all other states. Only the smaller territories of the NT and ACT did relatively better. NSW gained a competitive edge on several fronts.
The most important was the scale of social and economic infrastructure construction which helped Sydney and regional cities catch up with their strong population growth. Proceeds from selling government businesses (tagged “asset recycling”) and heavy borrowing in the past three years tripled capital spending on works from $7 billion in 2010/11 to more than $22 billion this year. Some projects, such as stadium demolitions, Randwick light rail and the Powerhouse museum relocation, were dubious, but the vast majority withstood cost-benefit analysis.
The outcome of this construction drive is everywhere to be seen – a vast metro rail system, new tollways interconnecting Sydney plus the renewal and addition of hospitals, schools and other public buildings.
Former Labor roads and transport minister Carl Scully fretted in his autobiography: “The current Liberal National Party state government is now getting on and building the major rail and road infrastructure across Sydney and fully exploiting the fact that three post-Carr premiers were simply asleep at the infrastructure wheel.”
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There has also been an improvement in citizen and business interaction with government agencies through establishing Service NSW offices in most localities, and the digitisation of the whole public sector to an extent not tried by other governments. That has given NSW Health the upper hand in rapid COVID-19 testing and tracing, which helped avoid prolonged and disruptive lockdowns. It’s now widely recognised that NSW is the “gold standard” for managing the pandemic. Hence the popularity of the Premier, who first showed her mettle in a crisis with the black summer bushfires.
Another plus has been that energy policy has not torn the government apart. Instead, there is agreement on net-zero carbon emissions by 2050 through creating regional jobs in renewables. But legislation permitting landclearing threatens koalas. Paying farmers to protect the species may be the only solution. Over-allocation of water rights and poor policing in the Murray-Darling basin has also attracted criticism.
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From a governance perspective it was refreshing to see a centre-right government do what is normally associated with the centre-left – introduce a state strategic plan that set key policy priorities and ambitious targets to achieve them. And more recently the state budget moved from being program- to outcomes-based. This is a contrast to 2005 when the new treasurer ordered the Council on the Cost and Quality of Government to cease publishing annual KPIs on each agency.
The pandemic-induced recession of 2020 undermined state finances, causing NSW to lose its triple-A credit rating for the first time. Before COVID-19, budget surpluses totalling almost $8 billion were projected for more than four years. With revenue collapsing and additional outlays for COVID rescue measures, the budget outlook became deficits of more than $27 billion – a reversal of $35 billion.
The government has decided not to let that debilitating fiscal drag interrupt its infrastructure program of $22 billion each year, meaning its net debt will jump from $19 billion in 2019/20 to $92 billion by 2022/23. To slow the further growth of that debt, it will need to begin budget repair next financial year and to sell more assets, such as its share in WestConnex.
NSW also faces two other headwinds. One is the collapse of population growth, which may be slow to rebound because of lower fertility rates and immigration. The other is the breakdown in trade with China, which is hurting the coal, farm, tourism and higher education sectors. Fortunately, low interest rates are boosting home building and the end of the drought has revived rural life.
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And almost eliminating the virus ahead of the vaccine rollout should ensure retail, entertainment, hospitality, accommodation and domestic aviation bounce back quickly.
Opportunities for reform exist not only in land tax, but also in governance processes following admissions that pork-barrelling let partisan politics decide community and bushfire grants. A survey of 12 important pieces of NSW legislation in the past three years by two opposing think tanks (the Institute of Public Affairs on the right and Per Capita on the left) found that only a third passed muster on good policy-making criteria.
One reason might be that agencies have lost much of their core policy thinking role to external consultants who are not only expensive, but don’t embed their experience. Furthermore, basic policy-crafting instructions and training seem to be missing. These things are not hard to fix but need the will to do so. Robust policy development would also assist the passage of bills in the upper house where minority parties now hold the balance of power and decide their fate.
Percy Allan is a visiting professor at the University of Technology Sydney and a former secretary of the NSW Treasury and a former chair of the NSW Council on the Cost and Quality of Government.