The challenge for the current, and future, governments in WA is to add to the value of the state’s minerals exports.
THE two events were happening at the same time at opposite ends of the city. One was a book launch extolling the virtues of one of Western Australia’s most prominent politicians, the other was the announcement of yet another $1 billion-plus state budget surplus.
The participants at each event appeared unaware that the other was occurring, yet both happenings were intimately entwined in the state’s strong economic performance.
At the eastern end of Adelaide Terrace, author Ronda Jamieson was explaining to a breakfast audience the key points in her new 485-page biography of former premier, Sir Charles Court. At the top end of St Georges Terrace, the treasurer, Christian Porter, was beaming as he announced a budget surplus for 2010-11 of $1.6 billion, while attempting to dampen down expectations for the next year.
And what was the link between these events? Simply that if one person is considered responsible for laying the framework for the growth of the state’s economy, it is Sir Charles.
Remember Sir Charles was minister for industrial development from 1959-71, during which time he oversaw the opening up of the Pilbara as an iron ore province. While premier, from 1974-82, he laid down the framework for development of the North West Shelf gas field, and construction of the Dampier-Bunbury gas pipeline.
These are the twin pillars on which the state’s remarkable economic development has been based; and the impact on the budget has been profound.
Just look at the revenue from royalties. Dr Jamieson explained that, when the Pilbara was opened up, the companies funding the four pioneering mining consortiums paid for new towns, railways and ports. The royalties they paid the state government were pitched at the lower end of the scale in order to get the developments off the ground.
Court’s critics soon forgot these initial expenses, however, arguing that the minerals – ‘finite’ assets – were effectively being given away. They don’t seem to be arguing that now.
Royalties for the past financial year were originally estimated to generate $2.3 billion in revenue for the state’s coffers. The final figure was almost double that – $4.2 billion.
According to the WA Treasury, three factors accounted for the big royalty surge. The first was the removal of concessional rates for fines ore, which had been negotiated by Sir Charles in the 1960s when they were a less attractive commercial proposition. Premier Colin Barnett negotiated the ending of the concession last year.
The second was a 58 per cent increase in iron ore prices, compared with those forecast in last year’s budget.
The third was the high exchange rate with the $US.
Dr Jamieson gave some examples at the launch of her book as to how WA’s economy has grown. They were quite illuminating.
For example, in 1959 when Sir Charles became industrial development minister, WA had a trade deficit of $132 million and a public debt of $464 million, with an annual interest bill of $21 million. Average wages were 15 per cent below the rest of the country.
She said when Sir David Brand’s coalition government lost power 12 years later, while the nation’s trading deficit was more than $200 million, WA returned a trading surplus of almost $2 billion ($18 billion in today’s dollars). In its final year in power the government invested $360 million in 180 projects in an attempt to keep abreast of increasing demand for goods and services.
To illustrate the impact on the workforce, the Pilbara’s non-indigenous workforce in 1959 was just 4,000. Twelve years later it had jumped to 47,000. And during his term as premier, Sir Charles championed the North West Shelf gas development, which the author described as the nation’s biggest and most successful resource project.
The financial edge which resource development has given WA over the rest of the Australian states is clearly shown in the accompanying table. The state’s $1.6 billion surplus for the past year is matched only by NSW with $1.26 billion. Three states returned deficits, with Queensland’s $2.1 billion figure harshly affected by the unprecedented floods that hit the state last summer, severely restricting revenue-raising activities, especially coal mining.
The WA Treasury, which has become notorious for its conservative forecasting, has tipped a surplus for the current year of a relatively modest $442 million. Victoria and the Northern Territory are the only other states or territories which are also expecting to finish in the black.
It’s this economic strength compared with the other states that has caused so much friction in Commonwealth-state relations. There is a view within state government ranks that while WA is stretching its public works budget to help service the demands of new projects, other states reap the financial rewards through the Grants Commission. The extra revenue being generated in WA is redistributed, without them having to lift a finger. It hasn’t been put so explicitly, but they are effectively freeloading.
WA was a beneficiary under the Grants Commission formula in Sir Charles’ day. While he undoubtedly would have agreed to the state now kicking in to assist those states doing it tough, he would have been alarmed, like Colin Barnett, at the inroads projected into WA finances over the next few years.
The great uncertainty in the world economy is how long the rapid economic expansion in China will continue. Right now, China and WA are the perfect fit, and that’s reflected in the local economy.
Ronda Jamieson said one of Sir Charles’ disappointments was being unable to ensure that more of the state’s resources were processed before being exported. That would greatly add to their value, and provide thousands of skilled jobs as well.
That’s his challenge for Colin Barnett and Christian Porter, and their successors.
