Budget pain leaves little wiggle room

Budget pain leaves little wiggle room

On Thursday night Ted Baillieu helpfully told a gathering of journalists that as of January 1 we can start referring to "next year's state election". It was a timely reminder of the speed at which the political cycle seems to move.

The next morning he released a mini budget inflicting $750 million worth of added pain – including higher vehicle registration fees, tougher eligibility rules for the first home owner grant and further public sector cuts.

At a time when concern about cost of living pressures are already high on the political agenda, this was always going to be risky. But for a Government facing what might be politely described as "challenges", having to implement these sort of measures as it enters the second half of the political cycle is less than ideal, particularly since it comes on the heels of some tough announcements over the past year, including 4200 public sector jobs, sharp increases to fines, and cuts to TAFE funding.

Part of the problem is the Government has wrapped itself in rigid fiscal straight jacket by vowing to keep the budget in surplus by at least $100 million annually, pay back debt and fund future infrastructure from savings rather than borrowing.

This has left it with little room to manoeuvre, particularly since it has now largely milked the budget of accounting fiddles and hollow logs. It has also pared back much of the excess fat from the bureaucracy.

State Treasury believes the economy will grow by 2 per cent this year and by 2.5 per cent next. But there are risks, including the possibility that the global economy could remain weak, "national developments" in the form of Commonwealth spending cuts, or the possibility that commodity prices fall.


Treasury's own calculations show that if Victoria's economic growth, for example, turns out to be 1 per cent lower than expected this financial year, the budget would lose about $658 million over four years.


Voters tend to reward Government's that are fiscally disciplined – provided they can see the end gain in the form of improved services and infrastructure. The big challenge for the Baillieu Government will be ensuring it has enough money and time left in the political cycle to provide those rewards.

After losing $1 billion in predicted taxation revenue compared to what expected in the May budget on top of massive revenue downgrades over the past two years, the Government now has little choice but to strap itself in and pray won't be buffeted by further troubles in 2013.

Josh Gordon

Josh Gordon is The Age's state political editor. After a brief period in the Sydney banking world and the federal bureaucracy, Josh spent six years working as The Age's economics correspondent at Parliament House in Canberra. After cutting himself adrift to travel the world, he was lured back to reporting early in 2007. Most recently he has worked as The Sunday Age's politcal editor, based in Canberra, and The Age's state economics correspondent in Melbourne.

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