VICTORIA should rename itself the average state: in better shape than the dud duo of NSW and South Australia but not as hot as the resource-rich pair of Queensland and Western Australia.
Sound familiar? Victoria's Goldilocks spot in the national economy mirrors Australia's place in the world economy.
That makes John Lenders's first Victorian budget the canary in the coal mine for Wayne Swan's debut next Tuesday.
Lenders has the problem closest to Swan's: a slower economy and a bigger budget surplus.
Victoria's gross state product is forecast to rise by 3 per cent in the coming financial year, yet the surplus for the coming financial year is $827.5 million - a lucky escape when you consider that a year ago the forecasts for 2008-09 had the economy growing at 3.25per cent, and the surplus at $434.2 million.
A slower economy yielding double the surplus for the government would, in ordinary times, signal a serious error in fiscal policy. But Lenders is not hacking into spending. The seeming mismatch between growth and surplus boils down to the same thing Swan has: windfall tax revenues from the surreal economy.
For Lenders, it's the Melbourne property market; for Swan, it's the record prices China and others are willing to pay for our commodities. With money coming from forces beyond your control, the Victorian and federal treasurers should be judged not by the size of their surpluses but by the quality of their spending and investment decisions.
To make sense of what Lenders did yesterday, and to use it as a benchmark for Swan, let's recall what Peter Costello used to do with windfalls from the surreal economy. Every bonus tax dollar flowing into federal coffers over the past three years was returned to voters as either a tax cut or increased government spending.
The commonwealth Treasury wasn't exaggerating when it compared the final term of the Coalition government to Gough Whitlam's splurge in the early 1970s. Whitlam, like John Howard, saw a boom in the terms of trade as a licence to expand government.
But Howard at least allowed his treasurer to keep the budget in surplus. Lenders is no Costello, and his boss, John Brumby, is no Howard. They took one look at Victoria's revenue windfall and said, "Let's hang on to it".
Sure, the local press will trumpet yesterday's tax cuts. But apply the Costello test and you'll see the Victorians didn't return the latest round of tax-bracket creep to business and home buyers.
Land tax was running $375million higher in 2008-09 than was forecast a year ago. But Lenders gave back less than one dollar in three of this amount - $122million - as a tax cut. Stamp duty receipts were $1.029 billion higher than projected a year ago. Again, the tax cut was only a fraction of this sum - $150 million, or less than 15 per cent of the total.
These numbers weren't in yesterday's budget papers. You had to remember to bring last year's forward estimates to compare the two. This is not to criticise Lenders's priorities. The higher surplus is being invested in infrastructure. It is better there than in the pockets of public servants.
The pity is that Lenders did not want to paint himself as Scrooge. His pitch to Victorians was too complacent by half. The message wasn't tighten your belt, but enjoy the scraps. Swan won't make this mistake. The fiscal buck stops with the federal Treasurer. To justify a large surplus, Swan must do what Lenders wasn't forced to: cut government spending.
Swan has a harder sell. He will be taking from voters in the same breath as he delivers the tax cuts he promised at the last election.
All Lenders had to do was keep a straight face while he pocketed the bulk of Victoria's revenue windfall.
ALYSIS: George Megalogenis | May 07, 2008 | The Australian
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