O’Farrell Finds ‘Black Hole”

(This post has been updated on 30-March))

New NSW Premier, Barry O'Farrell, has released the typical new government "we found a black hole in the budget" media release.
It was not unexpected - almost every new government does it, whether Coalition or Labor.
Mr O'Farrell released a media statement headlining a "$4.5 Billion black hole".
But where did the $4.5 Billion ‘black hole’ come from? The answer lies in events since the last estimates were released.

• the last estimates were released on 15-Dec-2010 and are shown below. the ‘latest estimate’ is reportedly what was given to Mr O’Farrell. The full document is at http://www.treasury.nsw.gov.au/?a=19225 

Budget Results	2010-11 $m	2011-12 $m	2012-113 $m	2013-14 $m
1/2 Yearly Review (Dec-2010)	167	176	432	129
Latest estimate		204	-405	-1,200
Change from 1/2 Yearly Review		28	-837	-1,329

 

Even with the updated figures the estimates give a TOTAL deficit for the period 2012-14 is estimated at $2.15 Billion, not the $4.5 billion quoted by Mr O’Farrell, which includes a new treasury guesstimate, the basis of which is  unknown. Budgets for 2011-12 – 2014-15 will be controlled by Mr O’Farrell and his Treasurer, expected to be Mike Baird.

• The estimates only go to 2013-14, BUT … there’s always a ‘but’ … Mr O’Farrell has included a guestimate for 2014-15, not included in the forward estimates by Treasury. The ABC reported

… Claire Curtin from Standard and Poor's says there is no threat to the state's credit rating at this stage.

"A significant proportion of the $4.5 billion number is both outside our outlook horizon and the forward estimates period," Ms Curtin said. …

http://www.abc.net.au/news/stories/2011/03/29/3176184.htm

• The new budget report will account for the ‘worst-case’ – it’s what Treasury does for incoming governments.
• It also accounts for the result of Labor’s sale of publicly-owned electricity assets, the extra expenditure involved, including developing a coal mine for a private company, and the subsequent loss of income from them. Former Labor Treasurer, Eric Roozendaal, is responsible for that.

All up – I do not doubt there is a hole in the budget, but I am not sure it’s a big as BOF said.

Perhaps, in the spirit of new ‘accountability’ promised by Mr O’Farrell, he might release the basis of his budget deficit in 2014-15, approximately 42.4 Billion, by his reckoning. Everyone’s allowed one dream per day – I guess I just had mine.

John