11/03/2010 - 00:00

Business calls for cool heads as political relationship of convenience turns tepid

11/03/2010 - 00:00

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Political reality has put an end to a brief period of cooperation between Colin Barnett and Kevin Rudd.

Business calls for cool heads as political relationship of convenience turns tepid

WHEN a business lobby group is calling for cool heads and common sense to dampen a row between the Commonwealth and Western Australian governments, it is clear that cooperative federalism has hit a stumbling block.

Close relations with Kevin Rudd’s federal government have been a hallmark of Premier Colin Barnett’s 18-month reign, since he narrowly won the state election in late 2008.

As the only Liberal premier in the country, Mr Barnett and his team have worked surprisingly well with the Labor Party leadership at a national level for most of their short term in government.

With the global financial crisis offering the Commonwealth an opportunity to splash some infrastructure cash, Mr Rudd and Mr Barnett were seen regularly sharing the platform for announcements on funding for the WA premier’s pet projects.

The pair came together at Kununurra in December 2008 to announce federal spending of $195 million on the Ord River Irrigation Scheme expansion.

Mr Rudd also made appearance alongside Mr Barnett in May last year at Geraldton, after the Commonwealth committed $300 million to the development of the Oakajee Port north of the Mid West city.

These were not the only occasions the pair met for photo opportunities to highlight their cooperative approach to federal-state relations.

And there were plenty of other high-profile minister-to-minister meetings, or their equivalent, along the way. Federal Parliamentary Secretary for Western and Northern Australia Gary Gray made appearances with WA Deputy Premier Kim Hames and Regional Development Minister Brendon Grylls.

“The state’s investment in the Ord Irrigation Scheme will see a major expansion of the East Kimberley economic base and the partnership with the federal government ensures we have the social infrastructure critical to support people living in the area,” Mr Grylls said at the early stages of this federal-state love-in in late 2008.

In September, Resources and Energy Minister Martin Ferguson joined Mr Barnett for the official signing of the Gorgon LNG project in Perth; and then as recently as early December the pair came back together for the turning of the first sod with a gold-plated shovel at the development on Barrow Island.

But lately, the joint photo opportunities have ceased and the rhetoric has changed.

Turning point

In late December, a turning point appeared to have been reached. Mr Barnett called on Workplace Relations Minister Julia Gillard to intervene in the strike action in the north-west by the Maritime Workers Union, which exposed new laws introduced by federal Labor.

At the same time, WA Mines Minister Norman Moore was going to warn his federal counterpart, Mr Ferguson, about the industrial action’s impact on the wider resources sector.

“It is easy to underestimate this cost when these projects are talked about in billions of dollars, but these costs are significant and will set back projects that we desperately need, not just for our state’s prosperity, but for our own energy security,” Mr Moore said.

Mr Barnett and WA Treasurer Troy Buswell have also rounded on the Commonwealth over the allocation of GST payments, under which WA’s share will slide to 7.1 per cent next financial year.

The concern of the state’s leadership is that by 2012-13, as shown in the last year’s budget papers, WA’s share of national GST revenue is projected to decline to just 5.7 per cent. Relative to WA’s population share of 10.5 per cent, state Treasury calculates that represents a revenue loss of around $2.4 billion in 2012-13.

This imbalance is exacerbated when seen in combination with the WA’s total per capita net contribution to the Commonwealth – reflected in high levels of company tax and other Commonwealth revenues generated from its resource sector, as well as the low level of social security and health benefits received by Western Australians – which far exceeds that of any other state.

In 2007-08, it is estimated that this was a difference of $8 billion.

WA’s leaders have also expressed concern regarding speculation that the Commonwealth’s Henry Tax Review is proposing to replace state mining royalties with a 40 per cent resource rent tax, similar to that applied to offshore petroleum producers.

While the Henry review remains under wraps, the proposal has caused a great deal of uncertainty in industry.

The basic premise is that instead of a straight royalty on the value of exports – which varies from commodity to commodity across the states and even differs among producers based on original state agreements – a resources rent tax would apply to operating profit.

Under such a system, not only could the states lose another direct source of income but, as they argue occurs with offshore petroleum, the Commonwealth has to be cajoled to contribute to the infrastructure needed to generate this revenue.

Risky approach

Even efforts to introduce uniform national occupational health and safety laws have stumbled due to misgivings from WA. In what may have been an early signal that the cosy arrangement between the state and federal governments was beginning to get uncomfortable, Mr Buswell had stated in September WA would not be bullied into adopting national Safe Work Australia system based primarily on the NSW model and backed by unions.

While Mr Buswell consented to a significant degree by December, even that came with a number of caveats, namely the penalties that would apply in WA.

But in terms of hostility, the state has most recently been keen to make mileage from the federal government’s mismanagement of roof insulation subsidies.

“The Rudd government is not taking responsibility for a situation it created in the first place,” WA Training and Workforce Development Minister Peter Collier said regarding efforts to help those put out of work after the scheme was scrapped. It is a disgraceful example of ad hoc policy, and we should have been consulted right from the start.”

For his part, Mr Rudd has also dropped the consultative approach. Last week, he launched his long-awaited plan to take over hospitals, warning the states about resistance and even referring to some premiers’ responses as ‘monosyllabic’.

The Commonwealth wants to take the lion’s share of financial responsibility for the hospital system, including carving out 30 per cent of the GST payments to cover that cost.

Campaign trail

So what has changed? With a looming federal election and a trickier-than-expected state budget, it appears both parties are prepared jettison cooperation in favour of the blame game. That is especially easy in WA where the governments at national and state level are of different political persuasions and there is less to gain from being as cosy as they were a year ago.

At a recent address to the Committee for Economic Development Australia conference, political commentator Paul Murray noted that this year was all about the federal election, which had changed the focus of state politics.

Mr Murray said the royalties issue alone could be enough to lose Labor votes in WA. As a result, he suggested that the state parties were under pressure from their federal colleagues to toe the political line.

In the case of state Labor, this meant keeping a low profile and avoiding costly errors that the Liberals could capitalise on. While this arguably gives Mr Barnett a free hand, he also has an obligation to his federal party colleagues not to be too friendly with Mr Rudd.

In some respects, this change of circumstances might well suit Mr Barnett. With the stimulus tap turned off, his budget issues are less likely to be solved by new federal promises. In fact, he has suggested in public that his revenue base is virtually under siege from Canberra.

The suggestion in some quarters is that the WA premier could follow in the footsteps of his lauded predecessor, Sir Charles Court, who made much political mileage from driving big developments and protecting his state’s rights.

At the CEDA event, Mr Barnett showed he was similarly happy to play the states’ rights card. Take, for instance, these comments on the Commonwealth Grants Commission.

“The grants commission is like a giant black box; no-one can understand it,” Mr Barnett said.

“It is full of assumptions and it spits out a number at the other end. It has got to be fair deal.”

However, there is some danger in this approach.

For instance, there may be a few state premiers against massive federal takeover of health, but it is possible that a Liberal WA government could take the blame for a policy that was potentially doomed to failure from the outset.

Despite very negative comments by his treasurer, the more politically experienced Mr Barnett was cautious not to completely rule out allowing a greater role for the federal government in health. He said an appropriate pooling of funds could end the health blame game.

But he questioned the ability for a hostile federal takeover, even with the backing of a referendum.

“Hospitals are owned by the states,” Mr Barnett said. “I don’t understand how Kevin Rudd thinks he will take them over. It’s not going to happen.”

The big danger area for the WA premier is just how reliant he already is on federal funding promises, often for projects which have yet to have any state money allocated in the budget.

“This is where he has to be careful,” said one state Labor insider.

“Barnett’s entire budget position is underwritten by the Commonwealth.

“Without that money they would not be thinking of a single infrastructure project.”

Industry worries

Business is also concerned about how quickly the cooperative approach has evaporated.

The Chamber of Commerce and Industry WA has expressed concern about the premier’s stance on royalties, which follows weeks of conjecture about the Henry Tax Review.

“WA will never ever give up control of royalties,” Mr Barnett said late last week at CEDA.

“If the Commonwealth does a resources rent tax it will be on top of the state. WA will not be vacating that space.”

Following those comments, CCIWA chief economist John Nicolaou issued a statement calling for cool heads and common sense, warning that business risked being caught in the middle of a political bunfight and the uncertainty that would create.

“It would mean that a key WA industry will be taxed twice,” Mr Nicolaou said. “It is not only unfair, but will disadvantage our mining and resources sector at a time when we need them most.”

Mr Nicolaou said the federal system could be very efficient but a review was needed to ensure that the allocation of roles and responsibilities at all levels of government was appropriate and properly funded.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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