A number of state and territory treasurers have sought to lay the blame for their weaker budget positions over the past two years or so on a downturn in economic conditions.
In early 2009, the NSW Treasurer Eric Roozendaal stated that ‘the budget will come under pressure as a result of the current cyclical downturn in revenues.’ A few months earlier South Australian Treasurer Kevin Foley described his state as having taken a ‘massive hit from the fallout on Wall Street.’ The Queensland and (now former) Victorian Labor treasurers also referred to a reduction in revenue consequent to the GFC.
Are these claims well founded? Have state government revenues fallen during, and since, the global financial crisis of late 2008? Now is an appropriate time to test the claims.
While consolidated taxation receipts did fall in 2008?09 compared to the previous year these accounted for less than a third of consolidated state general government sector revenue. A more appropriate indicator is the total revenue acquired by the general government sectors of states and territories.
According to state budget papers and annual financial reports, consolidated total revenue for the general government sector was $170.8 billion in 2008?09. This compared with revenues totalling $159.6 billion acquired over the previous year. In other words, states enjoyed a revenue increase of over $11 billion or seven per cent.
The latest state budget documents, released generally about mid-year, showed that consolidated total revenue is likely to increase again this financial year to $185 billion.
An even more representative figure for the changes in state revenue positions can be established by removing commonwealth specific purpose payments (including National Partnership Payments) to, and through, the states, which are presently counted by jurisdictions as part of their revenue base.
In 2008?09, untied consolidated total revenues were $128.7 billion – or $1.1 billion (one per cent) larger than in the previous year. It is estimated that untied revenues increased to $135 billion during 2009?10, and once again this financial year.
This analysis reveals that the states did not suffer revenue shortfalls as a result of the GFC and the associated economic downturn, contrary to the protestations of certain state government political representatives. Indeed, as I’ve shown in a number of analyses of state government public finances, the budget shortfalls observed in a number of jurisdictions are attributable to an ongoing pattern of excessive recurrent spending that requires urgent change.