The state of the state
In 2014 Australia’s political and economic landscape has been dominated by Federal affairs, allowing the Victorian state election to creep onto the horizon without as much attention as many would have expected.
On November 29, Victorians will go to the polls to decide whether to extend the Coalition’s reign beyond a single term, and the usual level of bastardised economic debate is almost guaranteed.
As always, the conservative side will bemoan 11 years of financial mismanagement under the former Labor government, and boast the remarkable turnaround they have achieved in the four years since 2010. Labor, by contrast, will deride the rising unemployment and stalling growth that accompany Liberal’s cuts to key services.
To avoid succumbing to the potentially misleading rhetoric of either side, a quick survey of the facts is in order, starting with Victoria’s growth and unemployment rates.
Using data from the Department of Treasury and Finance, and assigning each budget year to the government that handed down the preceding budget, we can derive the following:
Labor sustained an average growth rate of 2.8% over its period in power, while the current term and forward estimates indicate an average of 2.4% under the Coalition. Growth fell significantly below 2% in 2008-09 as the impact of the Global Financial Crisis hit the state, and unemployment’s downward trend reversed at this point.
Importantly, the budget estimates that the unemployment rate will continue to rise into 2015, peaking at 6.25%, well above the GFC peak of 5.5%. Overall, Labor’s term saw average unemployment of 5.4%, compared to a projected 5.8% under the Coalition.
Nevertheless, growth remains positive and unemployment (at present) below 6%. Should these indicators be of concern as we head towards the election? One way to find out is to compare them to the national equivalent, looking at Victoria’s performance compared with Australia as a whole. Here we find:
Growth varied in its relationship to the national figure under Labor, but has remained lower since 2009-10, possibly indicating a sustained and exaggerated effect from the GFC on Victoria compared to other states.
The unemployment figures are perhaps of more concern. After remaining below the national average for some years, Victoria’s unemployment rate jumped 2-3% above this average between 2004 and 2009. While this figure was brought back on par with the national equivalent during the final two years of the Labor Government, it has ballooned again since then.
A range of factors might be at play here, including the success of mining interstate vis-à-vis manufacturing in Victoria, as well as the investment decisions of both the federal and state governments in recent years. Either way, these indicators present as likely targets during the election campaign.
As the 2013 federal election showed, however, growth and unemployment pale beside the behemoths of political and economic discussion that are debt and deficit. Using figures as a percentage of gross state product we find:
It has been a long time since a Victorian government has handed down a budget with a deficit, with small surpluses delivered under the current and former government. Despite this, the state’s debt levels have grown significantly, from a position of less than one percent of GSP through most of the 2000s, to more than 6% of GSP in 2013-14, and higher again in 2014-15.
Despite what the recent federal campaign might imply, this is probably not a level that ought to give cause for alarm. It is, however, a rather significant blow to Liberal Treasurer Michael O’Brien’s claim that the past four years have been spent fixing the financial mess left behind by the Labor government.
These data points only scratch the surface of what is occurring in Victoria’s economy. They do, however, shed some light on the overall state of the state – and they might just come in handy when debate and conjecture about economic management gets into full swing.