15/01/2010 - 00:00

Budget pressure builds, golden goose gags

15/01/2010 - 00:00

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TREASURER Troy Buswell argued the government was doing a good job in tough circumstances.

TREASURER Troy Buswell argued the government was doing a good job in tough circumstances.

His opposite number, Ben Wyatt, asserted the government had failed to meet even its own goals.

Chamber of Commerce and Industry WA chief economist John Nicolaou saw room for concern.

The topic was the Government Mid-Year Financial Projections Statement, released last month as many businesses were winding down for the Christmas break.

“We are pleased to be able to announce a surplus today, despite it being smaller than anticipated at the time of the state budget,” Mr Buswell said at the time.

The general government sector operating surplus (i.e. the budget surplus) for 2009-10 dropped from the estimated $409 million at the time of the 2009-10 state budget to a revised $51 million.

Mr Buswell also announced that the outlook for the Western Australian economy had improved since the 2009-10 budget.

“The outlook for the state’s economy has improved since the 2009-10 budget, with growth of 2.25 per cent now forecast for 2009-10, compared to an expected contraction of 1.25 per cent at budget time,” he said.

“Growth is forecast to accelerate in the medium to longer term, reaching 4.75 per cent by 201213.

“These results are an example of the government’s successful management of the state’s finances and suggest that the global recession may soon be over.”

However, he also explained that the improved economic outlook had done little to boost the state’s finances, at least in the short term.

In particular, the government expects lower revenue from mining royalties and North West Shelf petroleum grants, mainly due to the significant rise in the value of the Australian dollar since May.

At the same time, the state’s expenses are growing faster than had been expected, largely due to higher salaries for government workers.

Expenses growth for 2009-10 has been revised up from 6.6 per cent at budget time to 9 per cent.

“To address these pressures, the state government has approved a new suite of corrective measures worth about $600 million over the forward estimates period,” Mr Buswell said.

These include delayed implementation of tax relief measures and the deferral of spending on a number of election commitments, including the Royalties for Regions program.

Mr Buswell said the new measures added to the corrective measures implemented since the government came to office in September 2008, which, on current estimates, total $8.5 billion across the four-year forward estimates period.

The biggest component ($3.2 billion) was the scrapping of budgeted capital works projects, such as the new sporting stadium, a new museum and new health facilities.

The second major component ($1.8 billion) was the so-called efficiency dividend, which is the government’s name for the three per cent spending cuts that government agencies have been required to implement.

Other corrective measures include economic audit savings ($1 billion), which include measures such as the outsourcing of traffic fine processing, and the lifting of electricity tariffs ($742 million).

“If the government hadn’t implemented these measures, the budget would be in deficit to the tune of $982 million in 200910, and the state’s Triple-A credit rating would be in jeopardy,” the treasurer said.

Despite this, Mr Wyatt has repeatedly criticised the government for failing to budget for election commitments and new capital works projects, such as the Perth waterfront redevelopment, the replacement of Princess Margaret Hospital and the retention of Royal Perth Hospital.

In a statement of risks, the budget papers acknowledge funding has not been provided for these and other projects and says the funding is subject to completion of a business case.

In his response to the mid-year review, Mr Wyatt claimed the treasurer had abandoned his own strategy of improving WA’s tax competitiveness.

On March 11 2008, Mr Buswell told parliament: “… if we consider tax to be the golden goose … taxation effort is not the size of the egg that pops out of the back of the golden goose from time to time but the amount of effort that is being applied to constrict the neck of the goose to force an egg out.”

“Treasurer Buswell has well and truly got his hands around the neck of the state’s golden goose and has now deferred the abolition of duty on non-real property, which means business will be slugged with an extra $355 million tax,” Mr Wyatt said.

“By deferring the harmonisation of the payroll tax grouping provisions, he is hitting small businesses with an extra tax increase of $156 million.

“This means the treasurer is imposing $511 million in extra taxes on Western Australian small businesses.

“The treasurer has abandoned all his previous rhetoric and is now forcing small businesses to pay for his financial negligence.”

Mr Wyatt said higher bills for electricity, water, and other essentials would also be imposed on families.

Mr Nicolaou was more measured but also critical, saying “the figures released today contain a number of worrying trends that require urgent attention by government”.

The CCI was particularly concerned about increased spending, and the impact it’s having on the budget surplus.

“CCI has been concerned for many years about the failure of successive governments to rein in record spending growth,” Mr Nicolaou said. “It is widely recognised as a risk to the state’s finances, but little progress has been made.

“This reinforces the need for the government to take tough decisions about how taxpayer dollars are spent, and how the public service operates.

“CCI urges the government to push ahead with much-needed reform of the public service, including structural reforms of agencies and departments, and reviews of their responsibilities and service delivery.

“An important step in this process will be to implement the recommendations of the recently released report by the Economic Audit Committee.”

Mr Nicolaou added that the government’s forecast of 2.25 per cent growth this financial year was optimistic.

“If the economy doesn’t grow in line with the government’s expectations, the state’s budget could easily slip into deficit this financial year,” he said.

 

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