27/05/2010 - 00:00

Barnett budget banks on understanding

27/05/2010 - 00:00

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IN his first outing as treasurer, Premier Colin Barnett sold last week’s state budget as one that reins in costs and shares the pain across the community, as increased charges and rising royalties have helped to keep the state’s finances in the black.

IN his first outing as treasurer, Premier Colin Barnett sold last week’s state budget as one that reins in costs and shares the pain across the community, as increased charges and rising royalties have helped to keep the state’s finances in the black.

While apologetic for increasing electricity charges (up 10 per cent from July) and water (17.7 per cent) to ensure prices reflect cost, Mr Barnett believes the community will understand its need to share the burden. He pointed out that, with reducing GST and Commonwealth Grant income, the state had to increasingly stand on its own two feet, generating 65 per cent of its own income.

The state will also increase the dividend paid by most government trading enterprises to 65 per cent from 50 per cent, a change it suggested was in line with other jurisdictions.

Business will be aggrieved that the payroll tax rebate for small business will not be extended or the general payroll tax rate altered.

The Chamber of Commerce and Industry WA cautiously welcomed the budget, noting the spending restraint, debt growth within reasonable levels, and capital spending in regions where big development was occurring.

“It is a budget that will help the state retain its ‘triple A’ credit rating,” CCIWA CEO James Pearson said.

CCI welcomes the decision to provide $19 million to create 7,600 additional training places.

However, it said more was needed to help local employers and the economy.

“The government’s Economic Audit Committee recommended, months ago, ways to run the public sector more efficiently. Sadly, the majority of its findings are yet to be acted on,” Mr Pearson said.

“The budget figures show that it is the hard work of local employers across the state, through the taxes they pay, that is keeping the budget in the black.

“The government cannot rely on a high tax burden to prop up their finances.

“Easing the tax burden will remove a barrier faced by employers to grow their business, invest in the state and create jobs.”

Mr Barnett was at pains to highlight the restraint on the government side of the ledger, budgeting to rein in spending growth from 12 per cent this financial year to 3 per cent in 2010-11.

Despite the government’s improved bottom line – a surplus of $286 million in 2010-11 peaking at a forecast $807 million in 2012-13 – Mr Barnett painted a picture of a fragile economy that had not yet overcome the global financial crisis and faced further uncertainty.

Suggesting the state had tentatively turned the corner from the GFC, he pointed to the federal government’s resources super profits tax and the jitters in the Euro zone as areas that created ongoing uncertainty.

The premier also admitted he was concerned about the state’s debt levels, which were forecast to rise to more than $20 billion in four years from $11.36 billion this financial year. While he said the debt was well within the capacity of the state to pay, it was the shift in the use of debt to fund non-income producing assets that was something to watch.

The Real Estate Institute of Western Australia said it was pleased to see no increases in the rates of land tax and stamp duty, especially at a time when homeowners were being charged more for utilities.

However, REIWA CEO Anne Arnold said it was disappointing that the government had not addressed the bracket creep that was continuing within the stamp duty thresholds.

“The government is anticipating that stamp duty revenue is projected to grow by $400 million to just over $2 billion over the next four years, and REIWA is concerned at projected revenue growth rates above 8 per cent in the forward estimates, and similar for land tax,” Ms Arnold said.

“This reinforces the need for reform of thresholds to take into account property price growth.”

Despite the global uncertainty, the state’s budget is partly built on buoyant forecasts for revenue from the mining sector.

Royalties income is expected to boom again, jumping 47 per cent on the back of rising iron ore prices to $US115/tonne to raise a total of $3.27 billion in 2010-11, a level from which it rises moderately and then plateaus at around $3.5 billion to $3.6 billion, for the out years of the budget.

There were no changes to the state’s royalties regime priced into the budget, however the government still expects by the start of 2010-11 financial year to see fruits from its discussions with Rio Tinto and BHP Billiton over their proposed iron ore joint venture.

The impact of the RSPT was not factored into the budget forecasts.

“Our many members, particularly the gold miners, welcomed the WA government’s decision not to increase the royalty rates in the budget announced today, however, we remain concerned that increases in royalties are still on the radar,” Association of Mining and Exploration Companies CEO Simon Bennison said.

“The potential ramifications if the royalty rates had been increased have therefore been temporarily avoided, although the significant reduced investment and job loss issues around the federal government’s new mining tax still remain.

“This point was further reinforced by Premier Barnett in his budget speech, where he stated that the prospect of this new mining tax on businesses large and small has already impacted the outlook for WA’s growth and will inevitably impact jobs growth.

“It is also interesting to note that the economic forecasts have ignored the ‘so-called benefits of the new mining tax’ as suggested by Ken Henry – on the basis that the forecasts were finalised prior to the federal government’s announcement of the new mining tax.”

“It is possible however that the WA Treasury officials have similar views to AMEC – that the Econtech model is fundamentally flawed.”

As a result of the rising royalties forecast, the Royalties for Regions expenditure under Brendon Grylls is set to more than double to $896.8 million in 2010-11, up from $357.1 estimated for the current financial year.

The biggest single allocation for the R4R spending is $253 million in the first year for the state government’s Pilbara Cities revitalisation program for north-west towns, part of a $846 million outlay over the next four years.

A significant proportion of that four-year spend is $150 million for development of the Nickol Bay hospital in Karratha to gain regional status.

Part of the Pilbara Cities budget, $310 million over four years, has been earmarked for joint infrastructure projects in partnership with the Commonwealth or private sector.

A significant proportion of the overall R4R budget spending was on schools, hospitals and other infrastructure, which are normally funded by other government departments.

 

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