A billion here, a billion there

The New South Wales government’s plans to spend $2 billion plus to replace two stadiums in Sydney reminded me of the oft-quoted comment on uncontrolled government spending attributed to a 1960s era United States senator: “A billion here, a billion there, and pretty soon you’re talking real money.”

In the NSW of 2017, his sarcasm is relevant to projects such as Sydney’s George Street tramline as well as the Sydney Football Stadium and the Olympic Stadium.  Sydney needs better public transport and world-class stadiums, but it is far from clear that these projects are the best ways of achieving them.

The stadiums episode is an example of why governments flush with funds cannot be trusted to use them wisely. Hubris sets in and money gets wasted. As confirmed by the budget update released yesterday, the NSW government is flush with tax revenue from the real estate boom and with many billions in privatisation proceeds.

The experience was similar at the federal level as the resources boom boosted tax revenue in the 2000s. Recurrent spending was increased as if revenue had reached a permanently higher plateau, which was subsequently shown not to be the case. The new CIS paper From Reform to Retreat: 30 years of Australian fiscal policy — released earlier this week — drew the general lesson that temporary revenue windfalls can sap a country’s fiscal strength in the longer term if they are used in ways that lock in fiscal costs.

At least the expenditure on stadiums is a capital outlay and therefore has a finite life.

The stadium episode also illustrates the public’s appetite for government spending. While the stadiums have been widely criticised, to my knowledge all of the critics have suggested spending the money on something else, rather than just not spending it at all and therefore having lower NSW government debt in the future than is currently projected.

As highlighted in From Reform to Retreat, the forces for higher government spending have become well entrenched in our democratic systems while the forces in favour of lower taxation and borrowing are more disparate.