Chris Barrett has shared his reflections about the first state budget to be delivered on his watch as head of the Department of Treasury and Finance.
“People might say ‘What does that mean for jobs if there’s less investment in projects for jobs?’. [The 2024-25 budget decisions about infrastructure spend are] … going to free up some capacity for the private sector,” Barrett told an audience in Melbourne.
“We have a massive, giant energy transition underway, that is only meant to accelerate in future years, and we have a massive, crying need for housing, which is also going to need to be fulfilled as well.
“We need to build houses, we need to get cracking on energy transition and we need workers for that,” he said.
The secretary made his remarks at a post-budget briefing event hosted by IPAA Victoria on Wednesday.
The mandarin has been in his new role for some months now, following an announcement last September that he would relinquish a looming appointment as chair of the Australian Productivity Commission to replace David Martine as Victoria’s Treasury and Finance boss.
Barrett previously served as economic deputy secretary with the state government for three years. He noted that at the time of the pandemic, it was evident to Victorian public servants that the economy was looking down the barrel of real capacity constraints.
The 2024-25 budget reflected an economic reality that experts were bracing for at the time COVID-19 and its associated disruptions began to hit the state, he said.
“It was evident, and pretty quickly straight after the pandemic, that we had disrupted global supply chains. We knew what was going to happen, and you were going to get a reaction in terms of prices.
“We also had a labour market that very quickly, got very, very tight immediately after the pandemic, Barrett said.
“Even though it’s a sort of stylised fact by now that everyone’s used to, that these capacity constraints on the labour and material side are real, and having an impact on price, it’s something that we have been developing pretty consistently in our advice to government over a period of time that … was going to have implications for government,” he said.
The secretary added there was was a coherent economic and fiscal logic that the government was unable to do everything at the same pace it had done previously, and that this was a feature of the last three state budgets.
It is reflected in the four-step fiscal strategy Labor introduced in its tentative stages coming out of COVID-19 (to create jobs, reduce unemployment and restore economic growth; return to an operating cash surplus; return to operating surpluses; and stabilise debt levels), and in the revised strategy in this week’s budget which adds an extra step – to eventually reduce net debt as a proportion of GSP.
This fact also informed the thinking and advice of treasury experts to the government, Barrett said.
“The capital program is what the economy is able to be at, and I think you see that reflected in the budget that was tabled,” Barrett said.
“You can see that steady ramp up in the pre-pandemic period [for government infrastructure investment], and a real peak [in 2023-24] we’re right in the middle of right now — $24 billion of government infrastructure investment in this year, and it goes to $15.6 billion in the final year of the forward estimates.
“That’s a 10% compound annual every year over the forward estimates, and that was very important in adapting the amount of activity that the government is funding to the capacity of the economy to deliver.”
On Tuesday, Treasurer Tim Pallas used his budget speech to reiterate the government’s approach was being led by “fiscal discipline” and “sensible decisions” amid workforce, supply chain and inflationary challenges.
Cost-saving measures Pallas announced in the budget included less advertising money for the VPS; concluding the sick pay guarantee; reducing public sector office accommodation costs; consolidating Supercare pharmacy services in priority primary care centres; and consolidating Court Services Victoria (CSV) “strategic sourcing and procurement”.
Some pandemic initiatives, however, like the Breakthrough Victoria fund to boost economic recovery and jobs growth, have been gifted an extension. The fund’s investment profile in the 2024-25 budget was extended from 10 to 15 years so that the bureaucrats managing the program have more time to review and select quality investments.
Joining Barrett at the post-budget panel hosted by IPAA was Grattan Institute CEO Aruna Sathanapally, who said Australian governments at all levels were operating in challenging economic contexts.
“Commonwealth budget is next week, the NSW budget is in June, and they’re all difficult environments for the state and federal level,” Sathanapally said.
“We’re seeing some of those long-term pressures collide with short-term pressures in labour products, and they’re genuinely difficult to navigate.
“A lot of the demand pressures, they’ve been building for quite some time. We’ve seen growth in the health system [for example], where broader spending growth has outstripped spending in the economy for some time — it’s certainly outstripped growth and revenue.”
While it was easy during the COVID-19 pandemic to implement a series of measures that addressed short and long-term pressures, the economist said that at the time of the public health emergency jurisdictions had not really turned their minds to the revenue side of the budget.
“The Commonwealth has an intergenerational report, NSW actually have an intergenerational report, and they’ve said effectively the same thing for 20 years, which is that we will slowly start to see demography changes and our preferences catch up with us in terms of the sorts of things that we want to be doing,” Dr Sathanapally said.
“There will be value from the public service but we’re going to have to think seriously about how we service that from the perspective of revenue but also from the perspective of workforce.
“Unless you’re actually thinking about how we close that supply of the type of workforce we need, all the money in the world is not going to get us the services that we need,” she said.
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