Budget pressures for governments new and old

The governments of Tony Abbott and Colin Barnett face big challenges when it comes to cutting spending.

Prime minister-elect Tony Abbott says the newly elected coalition government has a mandate to repeal the mining and carbon taxes, but question marks remain over its capacity to scrap the schemes.

The coalition secured a resounding election victory on Saturday, with big swings against the incumbent Labor government in its heartland of Victoria, South Australia and Tasmania.

ABC election analyst Antony Green this week predicted the coalition would win 89 seats in the House of Representatives, leaving Labor with just 57 lower-house seats in the new parliament.

Despite this, the new coalition government may be forced to wait until 2014 before it can pass key legislative amendments to balance the budget.

Labor and the Greens have threatened to use their current control of the Senate to block any attempts to repeal the carbon tax and the Minerals Resource Rent Tax.

The coalition expects to forego around $17.2 billion in revenue in scrapping the schemes but this would be counteracted by the removal of almost $26 billion in spending linked to the taxes.

This includes abolishing the Schoolkids Bonus, not proceeding with an annual $500 superannuation contribution for low-income earners, and discontinuing an increase in the instant asset write-off scheme for small businesses.

Any failure to implement these cuts would place significant pressure on the coalition not to proceed with major spending promises, including a $9.8 billion paid parental leave scheme and $11.5 billion in infrastructure commitments.

The legislative agenda for the new coalition government will be further complicated by the number of unpredictable and potentially hostile independent, minor-party and single-issue ‘micro-party’ candidates elected to the Senate from 2014.

Mr Abbott, who is expected to be sworn in early next week, says newly elected MPs should allow the government to take decisive action on behalf of the electorate.

“My job is to be respectful and courteous towards every member of parliament and that includes independent and minor party MPs, but in the end I think they all need to respect the government of our nation has a mandate and the parliament should work with the government of the day to implement its mandate,” Mr Abbott told Fairfax radio this week.

The coalition expects to save a total of just more than $6 billion over the forward years through its election policy commitments, with further savings coming from cuts to foreign aid and the public service workforce.

Mr Abbott’s cabinet is yet to be announced but it is widely expected that deputy Liberal leader Julie Bishop will take the foreign affairs portfolio, and WA senator David Johnston will retain his defence responsibilities in government.

Labor had entered the campaign confident it could claw back the marginal Liberal seats of Hasluck and Swan in Western Australia but was unsuccessful in both electorates, with its primary vote for the state slumping to just 29 per cent.

Labor managed to avoid losing any of its three WA seats, however, with former state planning minister Alannah MacTiernan defeating Liberal candidate Darryl Moore in Perth, and Labor incumbents Gary Gray and Melissa Parke holding their seats.

Former Liberal state treasurer Christian Porter enjoyed a comfortable victory in the seat of Pearce in his first foray into federal politics, but the Nationals’ star WA candidate David Wirrpanda appears unlikely to secure a Senate spot.

Meanwhile, a leading policy think tank has warned the Barnett government to rein-in spending to provide a buffer against volatile commodity prices.

Research undertaken by the Grattan Institute reveals that WA currently spends about 20 per cent more per person than New South Wales or Victoria in almost every single category of government expenditure.

The Barnett government included a record $7.5 billion capital works spend for this financial year in last month’s state budget, despite Treasury forecasting a $147 million deficit in 2014-15.

Grattan chief executive John Daley said there was clear evidence that WA needed to act now to improve its budget bottom line if it wanted to avoid further pressures down the track.

“One way of reading this is the Western Australian government is spending more because it can,” Professor Daley told Business News.

“I wish it was more sophisticated than that but I fear not.”

Professor Daley said health expenditure in WA had blown out in real terms over the past decade, while spending on government operations had also grown substantially.

The Barnett government plans to claw back $6.8 billion in savings over four years through a number of tax and spending measures, including cutting 1,200 public sector jobs.

The Grattan Institute’s research also reveals that despite WA’s declining share of GST revenue, its income per capita – which includes ‘own source’ revenue, such as state taxes, duties and investment income as well as royalties, tied grants from the Commonwealth and other payments – is around 20 per cent higher than its eastern states counterparts.

“The sum total of those (non-GST grants) is a lot more than the GST payments to other states, which is doubtless why other states are somewhat unsympathetic to Western Australia’s complaints about the GST,” Professor Daley said.

While Premier Colin Barnett has welcomed the election of a coalition government in Canberra, although the change in government has cast doubt over the future of several key WA infrastructure projects.

The coalition plans to scrap the mining tax-funded Regional Infrastructure Fund, which included $308 million in funding towards upgrades on the Great Northern Highway and $174 million towards upgrades for the North West Coastal Highway.

It will also not proceed with $500 million in funding towards planned urban rail projects in WA, including the MAX light rail project and the airport rail link.