Better numbers a mixed blessing

THE premier, Colin Barnett, would not have known whether to laugh or cry when he studied the recent annual report on Western Australia’s finances for 2009-10.

The report showed the government’s position to be much stronger than predicted in the budget, just four months ago. That’s a good thing, from an economic perspective.

But strong figures also raise expectations among voters that the government will be able to spend more in key areas such as education and health, and that household charges might start to be eased. And that’s where the problem comes in.

Governments are elected to deal with such issues. And Colin Barnett, who’s also the treasurer, will need to weigh up both economic and political factors in his decision-making.

For example, how long is the strong growth experienced already this year expected to continue? And what about the political issues? The government is approaching the mid-point of its first term. If it eases the squeeze now, might it be required to tighten up again if projected growth rates don’t materialise? Would there be a backlash at the next poll due in early 2013?

Certainly the economy has bounced back after the global financial crisis much faster than State Treasury expected.

For example, in May the government’s revenue for 2009-10 was tipped to grow by an impressive 11.9 per cent as activity recovered after the GFC. But when the final receipts came in an extra $250 million emerged, taking the growth to 13.4 per cent (see table).

Spending is a different story. It dropped by almost $250 million, bringing the growth rate down to 10.9 per cent.

Hence the surge in the surplus; from a modest $290 million in May it shot up to $831 million by the end of the financial year. If it continues to grow at that rate, expect a surplus well in excess of $1 billion this time next year. Yet the best estimate from the Treasury at this stage is just $286 million.

Callers on radio last week quizzed Mr Barnett on why household charges are escalating, causing great pain for many, at the same time as Eric Ripper-style budget surpluses are returning.

And that’s where Mr Barnett’s judgment will be put to the test, as he grapples with what he sees as being economically responsible against a possible end to his extended honeymoon with voters feeling his government is mean spirited.

The early signs indicate that the government will hold the line, at least for the time being. For instance there have been no signs of change in the cost-recovery push responsible for the rapid escalation in electricity and water charges.

According to Labor’s Treasury spokesman, Ben Wyatt, water is now 29 per cent dearer than under Labor, just more than two years ago. Electricity is up 46 per cent in the same time.

Mr Barnett says the rises will continue. But he’s promised the rate of increase will ease. That’s code for ‘we’ve made the big hits, now we can soften the blow’.

But there’s also a political imperative. It’s almost inconceivable that voters will continue to take pain without questioning when enough is enough, and look again at the alternative. What’s unkown at this stage is if, and when, such a reaction will kick in.

The speed and timing of the recovery seem to have caught Treasury by surprise. But being an old hand in the business, the premier knows that timing is everything. If he starts handing out sweeteners now, they will probably have been forgotten by the time he’s framing his next election budget. That means, of course, more sweeteners.

On the other hand if a tight rein is kept on spending and the economy continues to surge, big surpluses could only antagonise voters who are doing it tough. What might be economically responsible to the Treasury boffins – that is, hold off introducing concessions – might end up being electoral poison for the government.

All the time the premier will be keeping a close eye on the economic health of our major trading partners, especially China, knowing that any trouble there will have significant implications for state revenue, and possibly his prospects of winning a second term.

Mr Barnett’s ambition to never (knowingly) preside over a budget deficit appears to be intact. It’s how he handles the challenge of an economy bouncing back faster than anyone expected that promises to influence his emotional state.

Labor relief

THERE were audible sighs of relief within the Labor Party as the first returns from last Saturday’s by-election for the state seat of Armadale started to come in.

The by-election was caused by the resignation of the feisty former Labor minister, Alannah MacTiernan, in her attempt – unsuccessful as it turned out – to enter federal politics.

Labor feared that, in the absence of her personal following, combined with the fact that the ballot would clash with the replayed AFL grand final, a low voter turnout would lead to a swing against the party in its safest seat.

That would be not only a psychological defeat for the party; it would also be a blow to leader Eric Ripper, who has been under pressure due to poor approval ratings, especially when compared with Mr Barnett.

And the Liberals would take the kudos, even though they failed to field a candidate, knowing full well that by-elections tend to go against the government of the day.

More than 200 workers turned out for Labor last Saturday morning to knock on doors and remind Armadale residents to vote. Party secretary, Simon Mead, also urged the WA Electoral Commission to take out TV ads to screen after the football coverage, to publicise the ballot.

In the end Labor need not have worried. Its candidate, academic lawyer Tony Buti, who actually lives in the electorate, romped home with a two-party preferred vote of 70.56 per cent, ahead of the Christian Democrats on 29.44 per cent.

The Greens scored just 12.8 per cent of the primary vote, coming in third in the four-candidate field.

Mr Buti has big shoes to fill. But he will be welcomed with open arms by Mr Ripper when parliament resumes on October 12. The new MP will add much needed new blood to Labor's ranks. However Mr Ripper will still have to score some major hits, if speculation on an eventual challenge to his position is to be dampened.

• Peter Kennedy is ABC TV’s state political reporter.