Baird's budget is the model of conservatism, not reform

If, in these strange times, you have ever wondered what a genuinely conservative government would look like, consider the Baird government as revealed by its budget.

Premier Mike Baird and his Treasurer, Gladys Berejiklian, are cautious and responsible to a fault, putting retention of the government's AAA credit rating above all other objectives.

But, almost by definition, this makes them complacent, unimaginative and lacking in initiative. They are also claiming far too much of credit for the NSW economy's strong performance in recent years, especially relative to the other states.

It's true the state economy has been performing much better. But though the Coalition government has done more to help than to hinder, most of what happens in the economy is outside its puny control.

It's swings and roundabouts. Sometimes other states are growing more strongly than we are; at others - like now - it's our turn to lead the pack. In this our tendency to recurring property booms is a great help (though not to first home buyers).

Berejiklian tells us that "since coming to office in 2011, the NSW government has created 338,600 jobs". Really? Private enterprise played no part in it, eh?

Over the past year, we're told, NSW has created more jobs than any other state and now has the nation's lowest unemployment rate.

True. But what's equally true is that NSW has the lowest proportion of its population in employment - 60.7 per cent, against a national average of 61.1 per cent.

The economy's strong, property-fuelled growth, combined with the effects of privatising various government businesses, has led to rapidly rising budget revenue.

By maintaining fairly tight controls on government spending - particularly on the wages of government employees - Berejiklian has achieve ever-growing budget surpluses.

These surpluses have allowed a big increase in spending on infrastructure without much increase in government debt, thereby preserving our top credit rating.

With so much expansion and renewal of infrastructure needed, a government so well-placed financially and politically could afford to defy the strictures of the discredited American ratings agencies, but that's not the conservative way.

A truly conservative government is largely content with the world as it is and leaves "reform" to the radicals on the other side.

That's certainly been this government's approach. This budget only now honours an eight-year-old commitment to abolish three minor taxes on business transactions.

The government has done so because it has belatedly realised it could make up most of the lost revenue by imposing extra conveyancing duty and land tax on foreign purchasers of real estate.

Is this economically efficient? Does it fit with all the Coalition's talk about the need to encourage foreign investment?

Who cares? The government knows the impost on foreigners will be popular with voters, and is (rightly) confident it will do little to discourage investment - meaning, however, it will do little to make homes more affordable to locals.

Where did this bright idea come from? Although Berejiklian claims NSW is "leading the way in innovation" it came - as did other tax reforms adopted - from those hopeless Victorians. And Queenslanders.

This budget will keep us well away from financial bother. But it could have been much better.

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How not to cut government spending

The bloke who really runs the economy, Reserve Bank governor Glenn Stevens, has spoken: "There are quite some years of hard repair work ahead for whoever is the government over the period ahead."

He was endorsing the earlier warning of Treasury secretary John Fraser and Finance Department secretary Jane Halton that, given the Turnbull government's professed commitment to limiting the growth in tax collections, getting the budget back to surplus won't be possible "without considerable effort to reduce spending growth".

Trouble is, "reducing spending growth has proved difficult in practice", they said. Really?

This year's budget does little to reduce government spending and has trouble even in sticking to the Coalition's resolve to ensure all new spending (of which there's always a fair bit) is offset by spending cuts.

The practice of requiring spending departments to nominate equivalent cuts to cover their new spending programs may seem a healthy discipline.

But when you've been playing that game for years, the departments adapt, learning that their inefficiencies are valuable currency, not to be offered up except in return for some exciting new program.

It's a similar story with the ironically named "efficiency dividend" imposed on government departments and agencies, which is to be ramped up for a further three years, saving $1.4 billion on top of the normal "dividend".

Truth is that, contrary to popular impression, the cost of public sector wages, paperclips and so forth is such a tiny proportion of total federal (as opposed to state) spending that no amount of "efficiency dividends" could make a noticeable difference to the deficit.

But that's not to deny that yet further penny-pinching will worsen public service efficiency. The cuts have gone on for so long that "efficiency dividend" is now a euphemism for further compulsory redundancies.

The people who get the bullet tend to be those who could help their department and the government formulate better policies – not to mention the long-gone people in Treasury and Finance who knew where the real inefficiencies are still buried.

The point is that when you see a government resorting to yet another round of indiscriminate, no-brainer cost cutting you realise it isn't fair dinkum about "reducing spending growth".

Another sign of unthinking half-heartedness is when – as in this budget – you see the pollies taking the path of least resistance: picking on only those interest groups that lack political clout and public sympathy.

Such as? Well, public servants, for openers. We could cut the funding and staff of the Australian Securities and Investments Commission (until the opposition demands a royal commission into bank misbehaviour) and the Tax Office (until the punters get wind of how little tax the big multinationals are paying).

But also the unemployed, sole parents, overseas aid (with a budget deficit we can't afford to give money to poor foreigners, though we can afford to give tax cuts to rich foreign shareholders), legal aid and domestic violence (until Rosie Batty caught up with us).

Point is, if screwing the politically defenceless is the best you can do to control government spending you're never going to make it. They don't have enough to cut.

Until you're prepared to take on the powerful interest groups with their hands in the taxpayer's pocket – starting with the doctors, chemists, drug companies and private health funds, then moving on to the mining companies and even, dare I say it, the farmers and the self-seeking "self-funded retirees" – you won't make a dent.

Malcolm Turnbull does get big points for finally catching up with Costello's Battlers aka rich superannuants. The budget's superannuation reforms are a good example of expenditure control (in this case, tax expenditure) measures, carefully worked up by the econocrats over many weeks.

Treasury has had the reform of super high on its to-do list for yonks. My fear is that Finance – which has primary responsibility for the spending side – doesn't have any well-developed ambitions for genuine increases in the efficiency and effectiveness of major spending categories such as health, education and even defence.

There's been far too little championing of sophisticated measures invented by applied economists – such as income-contingent loans and case-mix funding of hospitals – and investing in later spending control, such as preventive healthcare.

When the econocrats aren't working up and pushing genuinely efficiency enhancing reforms, when they don't want to waste money on studies to determine what works and what doesn't, they and their political masters end up falling back on ad-hoc, end-justifies-the-means, no-brainer savings such as inefficiency dividends and cuts to grants to community groups that care more and try harder than any public servant would. Great Idea.

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