Budget battleground in credibility fight

WITH the financial crisis lingering and doubt about the strength and timing of a global recovery, the state's budget has become a political battleground with new issues flaring up on a regular basis.

Despite being the most robust of the nation's regional economies, even in Western Australia the state of government finances is proving a big issue, especially when economic credibility is a big selling point in the polls.

Just like elsewhere, the government here is trying to walk the tightrope of keeping the economy moving, delivering on election promises and providing some big visionary projects, without leaving a debt legacy that hampers the next generation.

In May, Treasurer Troy Buswell delivered his first budget. The document was well received and Mr Buswell was credited with maintaining a surplus this financial year.

However, it is not as simple as that. For instance, the budget's out years have looming deficits unless spending can be reined in and forecast debt reduced - or the economy recovers sooner than expected.

The economy itself is volatile. Commodity prices have picked up but so has the Australian dollar. And while everyone thinks, economically speaking, WA is best state to be in, in the best country to be in, there is still at least another year of pretty major pain ahead, according to the International Monetary Fund's latest global forecast.

Furthermore, last-minute Commonwealth largesse created issues for Mr Buswell even before his budget was delivered. The federal government's infrastructure package to help the economy included commitments of $339 million for the Oakajee port project and $236 million for the Northbridge Link project.

Both commitments must be matched by the state government.

Although the projects were very much on the state government's agenda, and Premier Colin Barnett said he was confident of receiving federal money for them, they were not included in the state budget.

That meant there was some pressure to show where the money - about $580 million - would come from as soon as the state budget was released.

Furthermore, Labor picked up other oddities. One was $139 million in federal government funding for the Midland Hospital; did this too have to be matched? The other was the government's own promises to sort out Esperance's port issues, which expected to cost $119 million when only $39 million had been allocated.

Then there was $539 million in anticipated revenue in the forward estimates provided in the pre-election financial projections statement, which related to a royalty deal with the iron ore majors that had not been signed off by the new government. That meant more than half a billion dollars that had evaporated.

These apparent anomalies provided an early opening for the state opposition, which it has been pressing away at in parliament in an attempt to widen that beyond a hairline crack.

On June 11, opposition Treasury spokesman Ben Wyatt claimed the state government should produce a mini-budget to better reflect WA's true financial position.

Mr Wyatt claimed the state budget, just one month old, was no longer accurate and claimed there were more than $2 billion in unfunded projects.

"These omissions mean that the spending forecasts contained in the budget cannot be relied on to paint an accurate picture of the state's finances," he said.

"With unfunded commitments already appearing to be in the billions of dollars the debt position is clearly worse than the budget indicates."

Mr Buswell acknowledges the financial situation is tight but denies there is an unmanageable blowout, dismissing the scale of the opposition claims.

Money will be found to meet the obligations on Oakajee, he says. Funding will, it seems, also be found for Northbridge Link, where the government has considerable equity in the project already in the form of the land component.

Mr Buswell denies the Midland Hospital needs more than the $40 million provided for in the current four-year budget period, with $140 million committed for the two years following the current budget. He adds that the federal government's commitment, enough to fund the whole first stage of the project, is over a period of six years and he understands it does not require the state to match it.

As for Esperance, Mr Buswell told WA Business News the $38 million required to upgrade existing nickel loading facilities was in the budget.

The possibility of building a new ship loading facility - thought to be about $80 million - is still being considered.

"We still have to work through that with the port authority and the industry to develop the business case," Mr Buswell said.

As for the iron ore royalties - the former government of Alan Carpenter had negotiated to end concessions for new developments - the treasurer said that number had been revised down to $197 million in the mid-year review.

Mr Buswell said he believed a better deal would be negotiated between the government and BHP Billiton and Rio Tinto, especially with their iron ore merger now on the table.

In that context, Premier Colin Barnett has been thumping the table with regard to the proposed merger.

He is seeking a number of outcomes from the deal, including an ambit claim of $1 billion for stamp duty as well as full royalty concessions, the latter being a sum of about $330 million a year.

"I don't think the failure for us to implement the Carpenter royalty deal will affect us negatively in the budget," Mr Buswell said.

But questions over government spending commitments, how they'll be funded and debt they could leave have continued during the past week.

The opposition has harried the government over the cost of maintaining Royal Perth Hospital as a teaching institution. The government has denied it will be more expensive, but that claim was undermined by the views of under-treasurer Tim Marney, which he expressed in a parliamentary hearing.

Mr Buswell said those issues were about spending, much of it recurrent, that would occur after the current budget period.

"That is a matter we will have to tackle," he said.

"In terms of capital costs at RPH, that is part of a broader issue we are working through."

He added that bureaucracies such as the Health Department needed to operate inside their budgets.

In addition, last week's commitment by Mr Barnett to start construction on the Perth waterfront project within 18 months has also prompted questions of how that will be paid for.

"The premier is proposing a foreshore development like Sydney's Darling Harbour and Circular Quay, and Melbourne's Southbank, which were billion dollar projects, yet has no financial plan or estimates for this project," Mr Wyatt said.

While the treasurer had not made any response to this at the time of writing, it is perhaps possible he'll stick to his comments in parliament of May 21.

"Are the members opposite trying to tell me that between the budget close-off and the handing down of the budget and in the week after, they never made any decision in government?" Mr Buswell asked.

"The wheels keep turning.

"We know they had a few periods when they parked and became stationary on the highway of life, but the wheels keep turning and we keep dealing with issues; that is what we do and that is what we will continue to."