29/02/2012 - 11:17

A little restraint goes a long way

29/02/2012 - 11:17

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The state government’s budget task has just got a lot harder, though some of the difficulty will be of its own making.

The state government’s budget task has just got a lot harder, though some of the difficulty will be of its own making.

COMMONWEALTH Grants Commission chairman Alan Henderson isn’t a figure many people in Perth are familiar with; yet he was the person who delivered some very bad news for the state last week.

Mr Henderson announced new ‘relativities’ that will change the amount of GST that is returned to each state.

The big loser from this process will be Western Australia, which will get back just 55 cents for every dollar of GST collected in the state in 2012-13.

The rationale, according to Mr Henderson, is that WA can afford it because the mining boom has boosted the state’s revenue-raising capacity.

“The growth in mining royalty revenue, as well as the impact of employment and wages growth on payroll tax revenue, have boosted Western Australia’s fiscal capacity to an exceptional level,” he announced last week.

“The associated reduction in Western Australia’s share of the GST has been allocated to other states and territories, giving them all the same capacity to deliver services and thereby gain some of the benefits of the mining boom.”

Not surprisingly, Treasurer Christian Porter didn’t see it the same way.

“Nearly all of this cut is plain and simple a penalty for WA’s ongoing economic success and it will severely constrain the state government’s ability to continue investing in the infrastructure and services needed to grow WA’s resource sector, which is propping up the national economy,” Mr Porter said. 

“This cut will see WA being further penalised for growing its economy and producing jobs, while at the same time rewarding those states which generate revenue from gambling.’’

The reduction in GST grants, which did not come as a surprise, won’t be the only new constraint facing Mr Porter when he frames the next state budget.

He will also need to start working on a Future Fund, in which Treasury is meant to put away money for the future.

Premier Colin Barnett foreshadowed this initiative last week, saying his government was committed to ensuring future generations have a legacy from this historic period of development, built predominantly on the state’s finite mineral resources.

Opposition leader Mark McGowan leapt on the proposal, describing it as a “hollow and transparent attempt to appear to plan and budget for the state’s future”.

“How can we budget for the future if we can’t budget for today,” he asked rhetorically, after pointing out the large increase in state debt under the Barnett government and the high growth in recurrent spending.

It’s a valid question from Mr McGowan, who resorts to simplistic populism in some policy areas but is on a stronger footing when critiquing the government’s fiscal record.

He isn’t the only critic. The Chamber of Commerce and Industry WA has consistently said the Barnett government needs to show more spending restraint.

One area of agreement is that the Grants Commission process is broken, and could get worse for WA.

Citing WA Treasury’s preliminary modelling, Mr Porter said WA’s share of GST grants could fall to as low as 27 per cent in 2015-16.

The critical question is whether the current review chaired by former NSW premier Nick Greiner will propose a better system for WA, including a floor under the state’s share.

Mr McGowan wants an 80 per cent floor, while Mr Barnett proposes 75 per cent. Either would be a big improvement, though a more fundamental reworking of the entire process is also warranted.

One answer may be a per-capita grants system, with adjustments or variations made on a transparent case-by-case basis, rather than the ‘black box’ system we currently have.

However, that is for the future. It won’t be of any help to Mr Porter as he frames his next budget; he will need to work extra hard to keep recurrent spending in check, while also maintaining the infrastructure investment critical to the state’s growth prospects.

In these circumstances, the government could be more receptive to genuine public private partnerships that use private sector capital to deliver infrastructure.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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