03/10/2019 - 12:05

Balanced budget just a start

03/10/2019 - 12:05

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OPINION: Having got spending under control, the McGowan government now needs to find ways to encourage business growth.

Balanced budget just a start
Mark McGowan knows his re-election prospects could hinge on his government’s ability to reduce unemployment.

OPINION: Having got spending under control, the McGowan government now needs to find ways to encourage business growth.

Restoring the state’s budget to a $1.3 billion surplus two years ahead of schedule is a feather in the McGowan government’s cap; but it’s only half the job.

The next major task is to help boost confidence in the struggling economy and get the unemployment rate down.

All governments need a dash of luck when implementing their strategic decisions. And Premier Mark McGowan and Treasurer Ben Wyatt must be pinning their hopes on the stars remaining aligned.

First let’s take a look at the element of luck.

Colin Barnett’s Liberal-National government left the state in poor financial shape when it was swept from office in 2017. Mr Wyatt implemented tough measures in successive budgets – including unpopular sharp jumps in household fees and charges and a harsh public sector wages policy – to repair the books.

And it has worked, aided by a dash of luck. For example, iron ore prices have remained way above the conservative figure projected in the budget for 2018-19 of $US61.90 a tonne, thanks to supply problems for Western Australia’s main competitor, Vale, in Brazil. The result has been an extra $288 million pumped into the coffers.

Such windfalls in previous years would have been siphoned off to other states, courtesy of the Commonwealth Grants Commission’s nonsensical formula for redistributing revenue from the GST.

However, thanks to the new GST reimbursement deal negotiated with Prime Minister Scott Morrison, who was focused on the Liberals’ federal electoral prospects in WA, the state now gets a much fairer return. That helped boost the budget bottom line, and also shore-up the local Liberal vote at the May federal poll.

There was also a one-off $250 million royalty settlement with BHP, which was very handy.

But then there were the government's spending curbs, which Mr Wyatt says should be given the most credit. In fact the treasurer’s media statement announcing the 2018-19 result was headed: '’Continued fiscal discipline puts State Budget officially in surplus’.

Noting that underlying expenses growth had been kept to 2.1 per cent for the financial year, Mr Wyatt added: “Over the first two years of the previous Liberal-National government, expenditure growth was an eye-watering 26 per cent, in stark contrast to the 4.4 per cent this government has achieved in the same period.”

Vastly different circumstances, of course, but Mr Wyatt was making a point. He also noted that WA was the only state where net debt was declining, which leads to savings in servicing the debt.

That money can now be spent (hopefully) on productivity enhancing projects.

So the government gets a credit on budget repair. The challenge now is how to give the private sector a shot in the arm and generate more jobs.

There’s no shortage of suggestions. Reduce payroll tax to encourage employers to take on more staff, ease stamp duty to help breathe life into the property market, and relax the belt tightening measures on wage increases to give tens of thousands of public sector workers more spending power.

Labor made much of the job creation issue in its election winning pitch. And while the premier has promised 150,000 new jobs over the next five years, the unemployment rate (with another election just 18 months away) is still stubbornly high at 5.8 per cent.

The government is aware it could be politically vulnerable on the jobs front. The headings on several recent media statements tell the story.

‘Major maintenance blitz: New job-creating school package unveiled’, was the heading for the statement on September 22 announcing a $200 million package for 789 public schools, to “create 3,150 WA jobs”.

Two days later, an $81.5 million infrastructure maintenance package for 89 health facilities, including hospitals, to create almost 1,300 jobs, was announced. The heading on the statement was: ‘Priority hospital maintenance blitz to help stimulate local economy’.  

Clearly the government knows it must get the unemployment rate down before the poll. And while the jobs created in the maintenance projects aren’t permanent, the premier and treasurer will be hoping they have a knock-on effect.

Delivering the first surplus budget after inheriting a series of substantial deficits gives Labor some kudos. But when will voters, and especially small business, start feeling the benefit? That’s the big question.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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