NSW Budget boosts infrastructure, delivers deficit: the experts respond

NSW Treasurer Mike Baird has highlighted the infrastructure spending in today’s NSW budget. AAP Image/ Tracey Nearmy

NSW Treasurer Mike Baird has handed down a state budget that predicts a return to surplus as early next year, with major spending on infrastructure as its showcase.

The budget predicts a lower than expected deficit of $329 million in 2013/14 (down from an earlier forecast of $423 million), with the promise of a surplus of $829 million in 2014/15, although this is much less than a previous prediction of $1.3 billion.

NSW Premier Barry O'Farrell has been keen to highlight this budget’s infrastructure spend, which includes $1.8 billion over four years on the WestConnex road project that aims to reduce the time it takes to get into Sydney CBD.

Over $14 billion has been promised for public transport, roads and maritime services and infrastructure to service residential growth areas, including those in Sydney’s north-west and south-west.

A total of $806 million has been allocated for the North West Rail Link, $353 million for the South West Rail Link and nearly $1 billion for fixing up the Pacific Highway.

The government says it will spend $300 million on infrastructure around new homes planned for The Hills, Green Square, Blacktown and the Hunter region.

Mr Baird said the budget included $884 million for health, $524 million for education and $171 million for police.

Newcastle Port will be leased for 99 years in an effort to raise over $700 million, about half of which will be spent on Newcastle.

Payroll tax will be cut for small business and public servants will have to be happy with a slow down in wage growth.

Here are some expert reactions to today’s NSW budget:

Yehudi Blacher, Professorial Fellow, Centre for Public Policy at University of Melbourne

[On the $1.8 billion for the WestConnex road project) I think it’s quite an innovative approach to funding that particular road. These sorts of approaches are always about getting the balance right in relation to risk and reward.

In each of these infrastructure projects, you have to make a judgement in the circumstances. The circumstances in NSW is they have just sold off some ports, including Botany and Port Kembla, they have some capacity to partially fund a major piece of infrastructure and they are using that to leverage private sector involvement down the track.

In the past, we had these BOOT deals – build, own, operate, transfer – and this is like a BOOT in reverse. The government is going to effectively make the investment, clarify the patronage is there and then based on patronage numbers, go to the market and seek private sector investment. It’s quite innovative.

Stephen Greaves, Associate Professor in Transport Management at University of Sydney

On the $1.8 billion on WestConnex road project over four years, it’s a difficult project to be objective about. I am not in favour of it. I think all you are doing is funnelling more cars into the city. You get into the CBD a few minutes quicker but then you hit all the old bottle necks. They will basically have to build it underground or take away half of [the inner west suburb of] St Peters.

It comes back to the question of ventilation stacks – where will they go? Until the technology is there to do this all a bit more safely for people, I don’t think we should be doing it.

Those figures for the North West and South West Rail Links may change over time. When you start building you find things you didn’t figure for. I think it’s an important piece of infrastructure.

We have been talking about the North West Rail Link for many, many years now. Every government gets criticised for a lot of talk and not doing anything about public transport infrastructure, so they have to be congratulated for actually doing something.

Those rail links will service those big residential growth areas planned for Sydney’s north west and south west.

Graeme Wines, Professor in Accounting at Deakin University

It is always instructive, when analysing a government budget, to see the changes in the figures that have arisen since the previous year’s budget.

From this perspective, a positive aspect is that the operating budget result for 2012-13, when using a common basis for comparison, is now expected to be $374 million in deficit. This is a $450 million improvement from the $824 million deficit forecast that was made at this time last year.

The same is not true for this year’s budget projection. The 2013-14 budget surplus was to be in surplus to the tune of $289 million when forecast 12 months ago. In the budget delivered today, and again using a common basis for comparison, the 2013-14 budget is now projected to be in deficit to the amount of $329 million. This is a $618 million negative turnaround in the space of 12 months.

These figures emphasise, yet again, the general unreliability of forward estimates that are contained in government budgets.

Phillip Toner, Honorary Senior Research Fellow Department of Political Economy at University of Sydney

On the long term lease of the Newcastle port, I consider that really be to an asset sale. You have to be worried about asset sales given the historical record of state governments basically giving assets away. Think of the electricity asset sales.

The $700 million for the biggest coal terminal in Australia doesn’t sound like a lot of money to me for a major asset. One would want to know the dividend returned annually to the government for this asset. In the past, for example, for electricity assets, the dividends would be the equal of the sale price after three to five years.

What happens in 10 years time when there is basically nothing left to sell? What asset sales allow government to do is put off the inevitable, which is a tax increase. It raises interesting long term political economy questions. When the cupboard is bare what do you do to boost revenue?

When you have a sale of an asset, it’s usually bad news for the taxpayer.

That deficit of $329 million is nothing. As a percentage of total expenditure, you can put it in perspective. It’s got to be tiny. The deficit more or less doesn’t exist and it’s hardly a rationale for asset sales.