22/05/2015 - 08:42

Budget sets election clock ticking

22/05/2015 - 08:42


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After a horror budget, Colin Barnett is eager to get on the front foot and talk about his positive plans for WA.

Budget sets election clock ticking
NOBBLED: The racing industry is opposed to the sale of the TAB.

After a horror budget, Colin Barnett is eager to get on the front foot and talk about his positive plans for WA.

MAKE no mistake; the battle lines are being drawn for the next state election, even though it is still 22 months away, after Treasurer Mike Nahan’s recent budget revealed a record deficit and continuing spiralling state debt. 

Labor’s Mark McGowan has already branded the budget as the worst in the state’s history, and described the privatisation program as a ‘fire sale’.

Premier Colin Barnett has conceded that the budget is not a ‘pretty picture’. Keen to get on the front foot after overseeing the first budget deficit in 15 years, however, he has adopted the bold approach, predicting that the economy will bounce back quickly.

Right now, though, the government is vulnerable to a multi-pronged attack. While Labor leads the assault, seniors groups are unhappy about the introduction of caps and means testing of concessions, both designed to curb costs. Even the Real Estate Institute of WA attacked the axing of the $3,000 first home buyers subsidy. Teachers are also unhappy.

But the government’s defence has some validity. Consider this. While Western Australia still has the lowest unemployment rate of all the states (which suggests the economy is reasonably sound), it has also generated a record budget deficit and state debt – all after applying a series of cost-cutting measures, the first wave of which was introduced in the run up to Christmas 2013.

So what has gone wrong? First there was the slump in revenue from the GST. That this would happen was flagged several years ago. Then there was the sudden collapse in the iron ore price. Should it have been anticipated?

A year ago, the best brains in the WA Treasury predicted that the average iron ore price for 2014-15 would be $US122.70 per tonne. By last December, this was cut to $US75/t. In the recent budget a chastened Treasury dropped its prediction to $US47.50/t, rising to $US50.70/t next year.

Given that the current price of more than $US60/t has encouraged Atlas Iron to reopen mines it closed only weeks ago, there is reason to believe the Treasury predictions might be extremely conservative. We live in hope.

Various unions have also lined up to hammer the budget, but one has been noticeably quiet – the militant Construction, Forestry, Mining and Energy Union, which is not normally on friendly terms with Mr Barnett and his team.

The government has been criticised for its capital works program, with allegations that it is trying to do too much too quickly. It has even been suggested that Mr Barnett is building monuments to himself with projects such as the Burswood stadium and Elizabeth Quay on the Perth waterfront.

But Dr Nahan made the point that there would be only a minimal reduction in the program over the next four years – the budget ‘out years’. This is because there will be plenty of workers looking for new building projects as the construction phase of the resource sector winds back. So it’s possible they could move to government undertakings and, quite likely, at lower rates of pay because of the slow down.

In one sense it’s a win-win. CFMEU members move on to new jobs, costs come down, and projects that promise to be useful public assets get built earlier than otherwise.

That’s the best-case scenario for the government – and the state. Some might balk at the timing as classic Keynesian pump priming. Intelligently managed, it could work to the WA’s advantage.

Whether it enables Mr Barnett and Dr Nahan to get the budget back into balance is another matter. It certainly helped that Prime Minister Tony Abbott threw WA a lifeline with his last-minute approval of an extra $499 million for roads. And there’s an expectation of a further – although less generous – top-up next year.

A modest surge in the iron ore price and a lagged recovery in the state’s share of its GST payments, plus the impact of cost-cutting measures, should all help restore the budget’s fortunes. And Mr Barnett will be hoping for minimal voter resistance to his asset sales program, as happened to Richard Court in the 1990s.

Another significant issue is the fate of Mr Abbott and his government. The third anniversary of its election will occur in September next year. If Mr Abbott can build on the bounce reflected in the post federal budget opinion polls, then the exercise will have done its job and the prime minister will be favoured to win a second term.

Whether this helps Mr Barnett win his third term is in the lap of the gods. Sometimes it helps if the other side is ensconced in Canberra, as you can’t be tarred with the same brush when unpopular decisions are made.

The election clock is ticking.


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