ANALYSIS: Big ticket economy items in Roger Cook’s favour, but tighter lead needed on spending

ANALYSIS: The pre-election Budget update is a nice little poll sweetener for Roger Cook, but there’s some tough questions to answer outside of the headline numbers.

The major economic indicators are in Cook’s favour - an improved projected operating surplus, again on the back of better iron ore royalties, and better-than-expected forecasts for inflation, employment and debt.

It all helps Labor promote its credentials on economic management, even though there’s no denying the State’s economy remains over-reliant on a robust resources sector filling its coffers.

However, look deeper into the update, and potential worries persist.

For a start, while expected government spending has dipped from the mid-year review in December, it is still growing at an unsustainable 10.5 per cent.

That’s a forecast $45.8b of spending this financial year, with forward estimates increased an extra $458m since the mid-year review, against a backdrop of almost full employment and reduced household consumption.

With revenue growth this year of just 6.7 per cent, the Government is spending at a rate in excess of what it is actually making in taxes and royalties.

This financial year, the wages bill, including superannuation, is set to top $20.4b - up 12 per cent on the year earlier. That level of increase would raise alarm amongst shareholders in any company.

The update reiterates that relief is coming next year when spending is expected to drop $1.5b, but how is not explained.

Elsewhere, government investment is crowding out the private sector. While growth in business investment is seen plunging to just 1 per cent this financial year from 12.7 per cent previously, forecast government investment has blown out to 13.5 per cent from 7 per cent at the mid-year review.

The Government argues the increased spending has been necessary to support a bigger population and rising uptake of services such as health and education.

But with the ever-present threat of lower iron ore prices, there’s an argument that a better manager would be doing more to rein in spending earlier to help pay down debt quicker.