17/03/2011 - 00:00

Barnett talks tough on funds deal

17/03/2011 - 00:00

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Colin Barnett has warned of problems for future development if WA can’t get a better funding deal from the Commonwealth.

PREMIER Colin Barnett has stepped up his campaign for a better financial deal from the Commonwealth, warning some major developments may have to be delayed because of inadequate infrastructure.

“I’m not going to see mines and resource projects develop all over this state unless I can be sure that the people of Western Australia, and the workers on these projects, have good conditions,” he said.

Mr Barnett’s hardening line does not relate to projects that are about to get under way, but rather those earmarked for development in the next five to 10 years. He fears the state will not have the financial capacity to provide the essential backup services such developments require.

“Something has to give here, and it is very simple for the Commonwealth to give some ground,” Mr Barnett said.

“All they need to do is agree to a floor share of the GST. I have said 75 cents (in the dollar). I think that is a fair figure. It still means we will be cross-subsidising the other states by hundreds if not billions of dollars a year.

“Unless we can get some certainty on Commonwealth-state financial relations, Western Australia is just going to have to rely more on debt; and that creates problems.”

Mr Barnett defended his prediction that state debt might balloon out to $20 billion over the next few years to provide the infrastructure that WA’s rapidly growing economy will demand.

He said Western Australians would become increasingly frustrated if development had to be curbed because of inadequate infrastructure linked with the Commonwealth continuing to take an increasing proportion of the GST revenue for redistribution to financially weaker states.

A ‘tea party’ situation could develop where voters simply rejected the Commonwealth’s increasing inroads into WA’s finances.

The premier said the state had a strong, forward-looking economy and people worked hard, especially in remote, inhospitable conditions such as in the Pilbara.

“We are the part of Australia that trades with Asia,” Mr Barnett said. “We are the part of Australia that will be trading with the Indian Ocean rim countries. We are doing it well as a state ... but we cannot carry the rest of Australia if we don’t get some fair deal in providing public services.

“We will not in this state allow major projects to develop unless we can match them with the appropriate housing, healthcare and schools for communities,” he added.

It was the premier’s clearest warning to the Commonwealth that, while it is in the national interest for the billions of dollars worth of new projects on the drawing boards to go ahead, WA was not prepared to bear the financial burden that could result.

State debt has grown since Mr Barnett became premier more than two years ago, and has now topped $10 billion. Governments traditionally fund major projects such as ports, schools and hospitals by borrowing, although big surpluses in recent years have led to $1 billion being earmarked for the new Fiona Stanley Hospital, for example.

Governments are usually keen to contain the growth of state debt for two reasons. The first is that the bigger the debt, the higher the annual interest bill required to service it. That means less that can be spent on the provision of services.

The second is that credit rating agencies watch the level of debt very closely. If it gets too high, compared with total state production, it could result in the loss of the triple-A credit rating. That would not only be a blow to the government’s status as an economic manager, it would also mean the money is more expensive to borrow, kicking up interest payments.

There are signs the Commonwealth is already taking into account some of the stresses linked with economic expansion, under which WA’s unemployment rate has dropped to 4.2 per cent, the lowest of any state.

While some of the miners are calling out for Asian guest workers to fill the anticipated vacancies in the construction of new projects, moves are under way to streamline interstate migration. That is to make it easier for interstate workers to transfer to places such as the Pilbara.

Increased exports enhance Australia’s balance of payments position, which, in turn, is linked with the strength of the Australian dollar. That makes it easier to pay for imports that mainly flow into the population centres on the eastern seaboard.

So a case can be made that some flexibility in the Commonwealth-state financial arrangements is in the national interest.

As reported in this column on March 3, the Commonwealth Grants Commission has already ensured that WA will receive more than $400 million extra next financial year because of increased royalties linked with the removal of concessions for some iron ore miners.

Agreeing to Mr Barnett’s latest case would not be without some political pain for the Commonwealth. It would mean other states getting less, and they would squeal long and loud.

But if there are economic gains for the nation as a whole – based on projects proceeding supported by the appropriate infrastructure, including for workers and their families – then improved living standards across the board could be the justification.

Mr Barnett hinted that the broad agreement of the other state leaders might not necessarily be required for such an arrangement to become a reality. The Commonwealth is the key

Mr Barnett’s case is compelling. But it’s still a long shot.

Local content

THE spotlight is not just on the state government to prove it can deliver on its assertion that major resource projects will issue more contracts to struggling fabrication shops south of Fremantle.

The issue presents an opportunity for the opposition’s new spokesman on local jobs, Peter Tinley, to show he can prosecute a case where the government’s raised expectations ahead of actual performance.

At this week’s rally at Parliament House the industry and unions teamed up in a rare unity ticket designed to pressure the major resource companies to award more contacts to local industry as their north-west operations expand.

Mr Barnett is working hard behind the scenes to promote the case for greater local involvement.

This gives Mr Tinley, a former army officer who replaced Alan Carpenter in the safe Labor seat of Willagee, the chance to up his profile on the issue, and claim some of the credit should the campaign bear fruit.

There’s a good chance it will. Some fabrication firms have spent millions updating their operations, which are still seen to be small scale compared with the contracts and work likely to be offered. That’s why some of the resource giants might be inclined to throw smaller contracts their way. That would increase local activity and defuse any suggestion they are exploiting local resources while bypassing local industry.

Everyone wins. Jobs flow, the premier is off the hook, and Mr Tinley – if he plays his cards right – grabs the credit. Watch this space.

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