MICHAEL COSTA delivered an extraordinary outburst on the desperate state of the Government's finances at his final news conference as NSW Treasurer, disclosing the severe effect of the downturn in the national economy and the acute pressures on spending that would result from last week's failure to sell the state's electricity generators.
In a scathing series of comments, the often abrasive Mr Costa made it clear that NSW must slash spending if it is to retain its triple-A credit rating.
He released a letter he had given to Morris Iemma on Thursday outlining the case for draconian cuts to Government spending, which he argued were essential if the state was to avoid paying the higher interest rates that would result from its credit rating being downgraded.
Mr Costa said state tax revenues had fallen by $180 million in the first two months of the financial year, the health budget had blown out by $300 million, and the Government had already overcommitted on spending by $500 million.
Areas such as transport were planning a further $3 billion of capital works spending, which the state could not afford, he said.
Mr Costa fought hard for the Government to launch a tough mini-budget, but lost.
Mr Iemma then decided not to include him in his planned new cabinet, before Mr Iemma's own demise became clear later in the morning.
To rein in Government spending, Mr Costa wanted the start of work on the North West Metro delayed by a few years, or for the North West Metro to be merged with the Western Metro, planned to extend to Parramatta. He also wanted steep spending cuts.
"Capital programs are about $2 billion too ambitious," Mr Costa said. "It has to be pushed out [delayed]. It's all about breathing space."
Mr Costa's dispute with the former premier began at cabinet meetings early in the week over the extent of the spending cuts needed in the proposed mini-budget resulting from the failure a week ago to offload the state's power generators, which has left a sizeable hole in the state's financial plans.
Mr Costa made a presentation to the cabinet earlier in the week on the state's looming financial crisis, and followed it up with a letter to Mr Iemma on Thursday that stressed the need for the Government to release an economic statement in the next two weeks. The letter outlined new fiscal targets needed to maintain the state's creditworthiness for investors, to be followed by a mini-budget within eight weeks.
As part of the budget process, Mr Costa wanted all ministries to review spending programs to ensure they complied with Government commitments and were absolutely necessary.
"It's a matter of pushing out capital spending, holding the line on wages and pushing through structural changes such as rail maintenance and partial privatisation of ferries," Mr Costa later told the Herald .
"It's not terminal: it needs the political will to get this right."
In the event, Mr Iemma decided Mr Costa was part of the problem and had to go, signalling deep caucus and cabinet divisions over the need for further spending restraint.
The Premier, Nathan Rees, said he was to be briefed last night by Treasury officials on the state's finances. He said he would exercise restraint.
"Fiscal responsibility is the lifeblood of this Government," Mr Rees said late yesterday, signalling he would work to maintain the state's triple-A credit rating.
The Government estimates the loss of the rating would cost the state $500 million in additional interest rates in the coming years.
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