Whereas O'Brien budgeted for an operating surplus a tad over $3 billion for 2015-16, Pallas has wound this back to a still credible $1.2 billion.Whereas O’Brien budgeted for an operating surplus a tad over $3 billion for 2015-16, Pallas has wound this back to a still credible $1.2 billion.

Victorian Treasurer Tim Pallas delivered a measured and largely progressive first budget today, made possible by a run of good luck together with some questionable political management by the former Coalition government.

First the good luck. Whereas Ted Baillieu and his short-lived sidekick Kim Wells took office just as the state revenue tide was going out, Pallas has taken over just at  the moment when it has come flooding back in.

Let there be no doubt that Victoria’s budget is in cracking shape and this is a generous one by any standards.

Mostly this is due to the property market, which has gone gangbusters in the past 12 months, and will continue to do so for the next 12 months, as it is  wont to do. On top of this  will be added a new tax on foreign purchasers of Victorian real estate, and absentee landowners, which will add another $50 million to Pallas’ booty.

There’s also several hundred million dollars in extra GST revenue, owing to a range of factors outside Pallas’ control, together with a similar amount that has been fleeced mainly from the accounts of the TAC that remain under government control yet also highly profitable.

But the biggest wad of money that  has landed in Pallas’ pocket  is not from new money, but comes courtesy of former treasurer Michael O’Brien​, who cut a swathe through spending and kept raising taxes to rid the state of all debt while cranking up infrastructure spending.

He left behind a lot of money for infrastructure that Pallas has grabbed with unmistakable glee and promptly shifted it to operating initiatives, all of which will go down very well with Labor’s friends in education (an extra $467 million), and health and human services ($729 million). Net of savings, these new initiatives amount to more than $1 billion for 2015-16, more than we have ever seen before.

Whereas O’Brien budgeted for an operating surplus a tad over $3 billion for 2015-16, Pallas has wound this back to a still credible $1.2 billion, a sum that is projected to swell to almost $2 billion four years down the track.

Labor’s caucus has every reason to smile, for the Coalition has effectively repeated the same mistake that Jeff Kennett made in 1999 when he surprisingly bequeathed a newly elected premier Steve Bracks a bucket of cash that he  spent returning sorely needed services while keeping the budget in surplus.

This time round the main beneficiary will be the core public services. Public sector wages and salaries are tipped to climb by a whopping 7.1 per cent next financial year, because of  the combined impact of wage rises and a bigger workforce that will bring a smile to the faces of public sector unions that not so long ago were lined up in front of O’Brien’s privatisation, small-government gun.

Jobs are the centrepiece of today’s budget papers, which include a new chapter devoted solely to this topic, reflecting a narrative that is Labor to the bone and backed up with $300 million for “Jobs Funds” to demonstrate genuine commitment.

Pallas’ first budget will go down well in Labor’s heartland but it won’t be so well received by big business. O’Brien’s infrastructure war chest was of course earmarked for the construction sector and their private financiers, while Pallas has shifted a sizeable bit of it to rebuilding public services instead.

Let there be no doubt that Victoria’s budget is in cracking shape and this is a generous one by any standards. Even though infrastructure spending is less than planned, it will still hit record levels. The question is whether Pallas might have done more, all things considered. Let’s face it, at less than 5 per cent of the economy, general government debt is low both historically and by international standards. Pallas could have borrowed several billion dollar more to keep infrastructure spending at O’Brien’s levels while still returning all those needed services.

But Pallas knows he is at the start of a four-year race, and timing is everything in this business. He will not want to spend too much today to have too little closer to the next election. And he will need to make sure he’s tucked enough away in case the property bubble bursts.

Fortune has certainly run Pallas’ way and, on balance, he  has the balance right in delivering a budget that, not  so long ago, he probably thought he’d never  have the chance to do. For by rights, today should have belonged to former treasurer O’Brien, who might want to reflect on the wisdom of building up a bucket of cash that ended up being spent by his lucky successor.

Professor David Hayward is Dean of Social Sciences at RMIT University. He advised Treasurer Pallas while in opposition.

http://www.theage.com.au/comment/victorian-budget-2015-why-victorias-budget-is-in-cracking-shape-20150505-gguhfo.html