Iemma's Banana Republic

by Mike Steketee - The Australian

If you were writing a script for how to get in trouble in the run-up to an election, you simply could not go past NSW. It has the lot, including a child sex scandal, a flagging economy and the fallout from the Government's long neglect of capital spending in areas such as water and public transport.

But let's start with an outstanding example of mismanagement. At the first whiff of political grapeshot last year, the Iemma Government broke its contract with the operators of Sydney's Cross City Tunnel and reversed associated road changes and closures. So far, the Government has escaped remarkably lightly for behaviour redolent of a banana republic. That is mainly because the decision gained it some short-term popularity, while an even more populist Opposition promised to go still further in tearing up the contract and reopening roads.

This is short-term politics at its worst. The Government has exposed itself to a massive damages claim which, from all accounts, the administrator appointed to run the company is intent on pursuing. The bill would be paid by taxpayers, who are also the voters the Government appeased with the decision. Not that they have been told they may have to cough up: the bill would not come until well after the March24 election.

And that is just the start of it. The decision has made business generally wary of this Government. No wonder: Macquarie Street has sent a signal that binding legal contracts are not worth the paper they are written on. Some businessmen say they will not bid for future work in NSW. All say it will increase the cost of doing business, with contracts needing to build in an extra premium for political risk. Taxpayers will pay for that as well.

Exhibit two on mismanagement is the two decisions the Government made last year to cut back irrigators' water entitlements. What's wrong with that in a drought year and with climate change? It was another blatant breach of the rules. This was not a case of reducing an allocation yet to be made. Rather, the Government panicked about water shortages and suspended access to water which irrigators already had bought from other users or held over from the previous year under long-established practice. In other words, the irrigators owned the water and in some cases planted crops or conducted other activities to make use of it. The Government did not offer to buy the water or even compulsorily acquire it: it simply refused to give owners access to it.

Last week the Government belatedly promised the irrigators $20 million in drought assistance. The NSW Irrigators Council estimates the confiscated water was worth $57 million, not including the value of the farming activity that had to be abandoned. Perhaps that is an exaggeration but the real point is this is another example of the Iemma Government breaching business trust. Governments have been preaching the virtues of water trading and the security of property rights, including over water. This is a case where it should have been prepared to spend taxpayers' money to buy entitlements. Governments are supposed to set the rules and enforce them, not break them.

This is a Government that does not know the boundaries of political behaviour. It is ruled by the mentality of one of its former favourite sons, Graham Richardson, who wrote a book about politics called Whatever It Takes. But even Richo was smart enough to know where to draw the line in politics, if not always allegedly in his personal behaviour.

So did another product of the NSW Right machine, Bob Carr. The former premier has largely played the loyal party servant since his departure in 2005 was followed by his successors dumping most of Labor's problems on him. Perhaps he did not expect to find himself reported in Australia last June, after he told a Washington audience that he would not have reversed the road changes associated with the Cross City Tunnel. "I'm afraid this could conceivably cost the state's taxpayers a lot of money," he said. "If the Government had held firm, the thing would have gone away; instead, they have reignited the issue."

There were plenty of mistakes made over the Cross City Tunnel, not all by the Government. The toll was set too high, in part because the successful contract included a $97million up-front payment to the Government. The projections of the number of cars using the tunnel were wildly optimistic. In these circumstances, motorists became understandably cranky about road changes.

There were other ways to fix the political problem than by throwing out the road closures together with the whole contract. Even subsidising a reduced toll would have been preferable.

The Iemma Government is not mainly to blame for the NSW economy lagging behind the rest of the nation. Rising interest rates have hit the housing market harder in Sydney and the resources boom is sucking jobs and investment interstate. But a government prepared to scare off investors for short-term political gain does not help.

The state election will not hang on this issue, particularly because the Opposition is even more irresponsible. So large is the Government's electoral margin, so powerful the benefits of incumbency and so discredited the Opposition that the Government on present indications will be returned with a reduced majority. But the ramifications of its behaviour are much more serious and longer lasting than any of the issues on which voters will be asked to exercise their choice.