Fiscal strategy is a political decision

The State Government's decision to pay off debt while infrastructure runs down is a political decision, not an economic imperative, writes WENDY CURRIE.

As is becoming increasingly clear, the NSW Government has allowed services in this state to run down, particularly education, health and transport.

The question of why is more difficult to answer. The amount of economic jargon and justification being bandied about clouds the issues. The Government ostentatiously boasts about the strong economic performance of NSW, its AAA rating and its continued (one might say serial) surpluses. Every now and then it mutters that the state can't afford what is essential to keep services operating. Whenever he's challenged about the inconsistencies of these two positions, (strong economic position and incapacity to pay) the Treasurer points out that the surplus is necessary to provide for a rainy day.

Standard and Poors, who provide the Australian and States/Territories' credit ratings, said late in 2003, that NSW is in a "strong fiscal position," so strong indeed that it will be able to manage the few challenges it might face. It named the main three challenges and one of these is the "current round of wage negotiations with teachers and possible flow on effects".

So why can't the Government find the money necessary to invest in the state's services and infrastructure?

When you look closely at the State Budget and you listen carefully to the Treasurer's statements you notice that for years now we have enjoyed a surplus and that that surplus, plus an additional amount (in fact over a billion dollars in 2002/03) was paid off state net debt.

"And so it should be," might be an initial reaction, "this is a sound economic strategy." But should we applaud this "sound strategy" which will see the entire state debt wiped out more than a decade earlier than this government's original plan to retire debt by 2020?

What else might we spend the money on? Maybe health, education and training and transport? Try this analogy: a family has a manageable mortgage, but decides to pay it off in a much shorter time than the original agreement. However, in doing this, the children are not fed or clothed adequately. Their health suffers and their long-term future as productive members of society look bleak.

The Government is currently doing just this -- and the state's services, lacking essential investment, are becoming increasingly unproductive.

The Government's fiscal strategy is a political decision, not an economic imperative.

The result is impoverished services, but a Premier and Treasurer who can bask in the reflected glory of a state unencumbered by anything as crass as a little debt.

Wendy Currie is a Research Officer.

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