Report Card on State Finances

Robert Carling
19 February 2017 | RR23
Report Card on State Finances

The Commonwealth government’s perilous financial position is well known, but the finances of state government also warrant our attention. In aggregate, since plunging heavily into deficit after 2007, the states’ fiscal position has improved markedly in recent years, marked by a return to net operating surpluses, much reduced fiscal deficits, and stabilization of net debt. Growth of operating expenses has been held below revenue growth. However, the aggregates mask major differences among the states. New South Wales was clearly in the strongest fiscal position in 2016, while Western Australia exhibited a sharp deterioration in several years leading up to 2016 and now suffers one of the weakest fiscal positions of all the states. The trend in other states was generally one of improvement in the three years to 2016, but South Australia, Queensland and Tasmania continue to exhibit weaknesses that set them apart from the stronger positions of New South Wales and Victoria. No state is in a position to be complacent and all of them need to keep a tight rein on operating expenses. Even New South Wales, as the strongest state, is vulnerable to an unexpected decline in property-related tax revenue and to risks associated with implementation of the state’s large infrastructure program.

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