The Victorian economy and government financial position

Transcription

1 The n economy and government financial position Presentation to n Council of Social Service 26 Congress Saul Eslake Chief Economist ANZ RACV Centre Melbourne th August 26 4 th

2 s economy is performing well given the challenges posed by the resources boom Real gross State product Unemployment 6 5 Real % change Rest of Australia % of labour force (trend) Rest of Australia 2 Sources: ABS; Economics@ ANZ; n and Commonwealth Treasury forecasts for 25-6 and 26-7.

3 In some areas of economic activity is doing slightly better than the rest of Australia Consumer spending Business investment % change from year earlier Rest of Australia % change from year earlier Rest of Australia Residential building Exports of goods % change from year earlier All data in chain volume (real) terms. Sources: ABS; Economics@ANZ. Rest of Australia % change from year earlier Rest of Australia

4 s population growth matches the national average, thanks to rising overseas immigration Population growth Migration to 1.4 % change from year earlier 7 No per week (4-qtr moving avge) Rest of Australia 5 4 From overseas From interstate Sources: ABS; Economics@ANZ.

5 is, in particular, doing better than New South Wales State final demand Population growth 8 Real % change from year earlier (trend) 1.6 % change from year earlier NSW NSW -4.6 Unemployment Residential building approvals % of labour force (trend) NSW 's (annual rate; trend) NSW 5 Sources: ABS; Economics@ANZ.

6 Melbourne house prices are holding up better, and n home-buyers are under less stress Established house prices Mortgage interest payments Index: 23-4 = 1 Melbourne % of household disposable income NSW Sydney Sources: ABS; Economics@ANZ.

7 Melbourne s rental market is now tighter than Sydney s which could mean pressure on rents Rental vacancy rates Median weekly rents 5. % (moving annual median) 275 $ per week Sydney Melbourne br houses Melbourne Sydney $ per week Sydney Melbourne 2-br units 7 Sources: ABS; Economics@ANZ.

8 The resources boom benefits WA, Queensland and the NT more than other States Mining and manufacturing as a share of State economies 25 % of gross State product, 24-5 Mining Manufacturing NSW Vic Qld SA WA Tas NT 8 Sources: ABS; Economics@ANZ.

9 The resources boom will pose major challenges for in the years ahead 9 ns are paying the cost of higher commodity prices (petrol, manufacturing inputs) but gaining few if any direct benefits from them Skilled labour and investment dollars may be pulled to the resource boom States of WA, Qld and NT likely to see an accelerated drift of mining company head offices to Perth Adverse effect of strong A$ (induced by high mineral and energy commodity prices) on s trade-exposed manufacturing and rural sectors if it wasn t for the commodities boom, the A$ would probably be below US6 now Higher interest rates induced by the strains associated with the resources boom (including as a result of Commonwealth fiscal policy) will strain n household finances

10 s budget will go into deficit over the next few years and net debt will increase General government cash balance General government net debt 1.5 $ bn 8. $ bn Sources: n Budget Papers; Economics@ ANZ.

11 However s budgetary position will remain strong relative to most other States Net operating balance Net debt % of GSP, four years to 29-1 NSW Vic Qld SA WA Tas NT ACT % of GSP, June 21 NSW Vic Qld SA WA Tas NT ACT Fiscal balance Net interest as % of revenue.5. % of GSP, four years to %, four years to NSW Vic Qld SA WA Tas NT ACT -4 NSW Vic Qld SA WA Tas NT ACT 11 Note: SA figures are for three years ended 28-9 or (for net debt) June 29; GSP for Tasmania & NT after 26-7 are ANZ estimates. Sources: ABS; State & Territory Budget Papers.

12 Some observations on State finances In general, States should not run operating deficits that is, recurrent expenses (wages & salaries, interest, grants etc) should not exceed revenue from taxes, Commonwealth grants, etc States are not responsible for macro-economic policy There s nothing wrong, in principle, with States borrowing for capital expenditures (infrastructure) there s no principle of economics or public finance which says the optimal level of debt for any government is zero within reason, borrowing is an equitable way of ensuring that future generations of taxpayers contribute to the costs of creating assets from which they will benefit The borrowings now contemplated by the n Government in no way imperil its finances ) regained its AAA-rating with a debt-gsp ratio around 6% NSW never lost its AAA-rating even with a debt-gsp ratio of over 8% 12

13 already has above-average average State taxes funding above-average average public services s revenue-raising effort ratio s level of service provision ratio 11 % of all-state & Territory average 15 % of all-state & Territory average Note: Revenue raising effort is the ratio of actual per capita State taxation revenue to that which would be raised if the State tax regime were identical to the average of all States and Territories; while level of service provision is the ratio of actual per capita spending to that which would be required to provide services at the same level as the average of all States and Territories, in each case as assessed by the Commonwealth Grants Commission. 13Source: CGC 26 Update; Economics@ANZ.

14 is by no means the highest taxing - and certainly not the highest spending State State revenue-raising effort ratios, 24-5 State level of service provision ratios, % 135 % NSW Vic Qld SA WA Tas NT ACT 9 NSW Vic Qld SA WA Tas NT ACT Note: Revenue raising effort is the ratio of actual per capita State taxation revenue to that which would be raised if the State tax regime were identical to the average of all States and Territories; while level of service provision is the ratio of actual per capita spending to that which would be required to provide services at the same level as the average of all States and Territories, in each case as assessed by the Commonwealth Grants Commission. Source: CGC Update 26; Economics@ANZ. 14

15 relies relatively more heavily on stamp duties, gambling and insurance taxes s revenue-raising effort ratio for selected taxes, % of all-state & Territory average Payroll tax Land tax Conveyancing duty Gambling taxes Insurance taxes Vehicle registration fees Vehicle transfer duty 15 Note: Revenue raising effort is the ratio of actual per capita revenue to that which would be raised if the State tax regime were identical to the average of all States and Territories after taking account of differences in each government s capacity to raise revenue from each tax, as assessed by the Commonwealth Grants Commission. Source: CGC State Update 26 Attachment E.

16 is spending relatively more than average on most major service areas except housing s level of service provision ratio for selected areas of State spending, % of all-state & Territory average Education Hospital inpatient services Housing Homeless & general welfare Police Urban transit Note: Level of service provision is the ratio of actual per capita spending to that which would be required to provide services at the same level as the average of all States and Territories, after allowing for differences in the need for and per capita cost of providing each service, as assessed by the Commonwealth Grants Commission. Source: CGC State Update 26, Attachment E 16

17 remains a relatively wealthy State Average household disposable income per capita, 24-5 Average household net worth, $ per annum 6 $ National average National average NSW Vic Qld SA WA Tas NT ACT 25 NSW Vic Qld SA WA Tas NT ACT 17 Sources: ABS; Economics@ANZ.

18 should stop complaining about the Grants Commission s distribution of GST revenues 18 is a rich State per capita incomes 4% above the national average it s odd to hear Labor Treasurers complaining about the redistribution of income from rich States to poor States (and Queensland is a relatively poor State) State Governments don t spend the tax revenues they raise in the areas where they raise it so why should GST revenues be distributed in accordance with population or consumer spending? Horizontal fiscal equalization is one of the main reasons why there s much less difference in income and wealth between Australian states than between US states or Canadian provinces The latest Grants Commission update suggests that WA and Queensland will cease being subsidized within 3 years anyway

19 Conclusions s economy has performed well in recent years economic growth has marginally exceeded the national average despite deriving little benefit from, and facing some challenges as a result of, the resources boom in particular is faring much better than NSW However s economy will probably grow a little less than the national average over the next few years as the resources sectors ( under-represented in ) draw jobs and investment dollars to the west and north while manufacturing ( over-represented in ) struggles with rising costs and a strong exchange rate s public finances are in good shape the fiscal deficits foreshadowed in the most recent State Budget are modest and manageable but needs to ensure that its business environment (including State taxes, infrastructure and skills base) remains competitive There is room for increased social spending but is already above-average in many areas 19