18/11/2021 - 16:04

Danger period for McGowan

18/11/2021 - 16:04

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Shifting expectations of reopened borders and economic headwinds will test the WA government.

Danger period for McGowan
Mark McGowan will be hoping for a surge in iron ore prices. Photo: David Henry

Mark McGowan and his Labor government are facing the most challenging six months of their term in office.

How they respond will determine the size of their majority at the next election.

The most pressing issue is the opening of the state’s borders to the rest of the country and the world as the double vaccination rate inches up.

Western Australians have been surprisingly patient, and obviously the government’s internal polling shows a clear majority supports the hastenslowly approach.

The state is lagging the rest of the country in not only the vaccination rate, but also in the relaxation of border controls.

However, there are growing signs that, as the Christmas break approaches and travel restrictions continue, the tolerance of many will be tested and a range of businesses will continue to suffer.

Mr McGowan is now saying that the more transmissible Delta variant of COVID-19 will come to WA and we must be ready.

But doubts have been raised as to the capacity of the hospital system.

This raises the question: what is going on in our hospitals?

There has been no flu season and only a minimal number of COVID-19 cases, yet we are told the hospital system is running at full capacity.

And elective surgery queues are growing.

What are the mystery illnesses clogging up hospital wards?

The never-ending tussle between Treasury and the health lobby over spending on hospitals has resulted in a win for the Australian Medical Association and the Australian Nursing Federation.

The government will loosen the purse strings to enable 270 beds to be opened and 180 extra doctors and 410 new nurses to be employed.

These initiatives will cost an extra $400 million over the next year and add to recurrent spending.

This decision only came after the bureaucracy produced a report on the virus, which included the ‘people are going to die’ argument if borders opened too quickly.

The argument clearly worked.

Mr McGowan will also have to grapple with a 4 per cent pay increase claim on behalf of public sector workers.

The argument is that they have had to settle for annual increases of a flat $1,000 for the past four years as part of the budget repair policy following the profligacy of the previous Barnett government.

It must be remembered that the inflation rate has been extraordinarily modest and public servants have retained their jobs, while many in the private sector have either lost theirs or had to accept a pay cut.

All these issues either do, or will, place new demands on the budget.

And after Mr McGowan, in presenting his first budget as treasurer on September 9, also announced a record surplus of $5.6 billion, the clear impression was that the government was awash with money.

As former premier Colin Barnett found out to his cost, however, revenue increases can evaporate swiftly without anyone lifting a finger.

It’s all to do with the vagaries of the iron ore price and the impact on royalties.

And the signs are not good.

While the price last May hit a record $US235.60 a tonne, helping to generate a bumper $11.3 billion in royalties for the past financial year, the position has changed rapidly for the worse.

Iron ore royalties for this year were tipped to generate $9.2 billion, based on an average price of $US121.30/t; but that is starting to look very shaky.

The price has dropped below $US100/t due to changing circumstances in China, the dominant market.

If that trend persists, the royalty revenue will crash and the projected budget surplus of $2.8 billion will start to look heroic.

It’s just as well Prime Minister Scott Morrison has said there will be no change in the better GST deal that he negotiated with WA while federal treasurer, despite the bleating of other state leaders.

Mr McGowan and his recently departed former treasurer Ben Wyatt were a formidable combination in dampening expectations during Labor’s first term.

Now it looks as though Mr McGowan will have to repeat the feat alone unless iron ore prices miraculously surge.

His second budget in May, on top of the other challenges, is taking on extra significance.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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