GST spending pressure

With the Commonwealth set to inject an extra $2 billion into Western Australia’s coffers over the next three years as part of the compensation package in response to the GST fiasco, the McGowan government will come under pressure to relax the belt-tightening measures it introduced to curb spending.

The measures range from pay freezes (including for politicians) to restructuring of the public sector with the aim of eliminating costly, and unnecessary, duplication in many areas.

Redundancies and staff freezes are included.

But Premier Mark McGowan and his treasurer, Ben Wyatt, must remain steadfast in the drive to achieve greater efficiency across the public service.

The drive is essential, in part due to the largesse dispensed by the previous Liberal-National government in the financial good times, which could never be sustained and resulted in higher on-going costs in service delivery.

And capital works projects should have been better spaced, with even former premier Colin Barnett now conceding that his government spent too much as the boom-time revenue rolled in.

One result was that many public sector workers, including teachers and nurses, became the best paid in the country.

There’s nothing wrong with that when the government can afford it, but times change.

The key point here is that the top-up money is not yet in the bank.

In fact, it will be several months before federal Treasurer Scott Morrison meets with his state and territory counterparts to seal the deal, which at this stage appears likely.

Mr Morrison’s package is far from perfect, but it does represent an overdue acknowledgment of the paltry share WA has been getting from the GST redistribution, as well as a pragmatic solution to ensuring no state is worse off as a result.

It’s not as ‘pure’ as that recommended by the Productivity Commission but, in his role as treasurer, Mr Morrison must balance the economic argument with the political realities.

The problem flowed from the Commonwealth Grants Commission’s formula for redistributing the GST revenue to the states.

It has been based on all Australians having the right to the same level of government service regardless of where they lived, whether it’s Laverton in WA or Longreach in Queensland.

And it is linked to the capacity of the wealthiest state, which for a limited period was WA, thanks to the resources bonanza.

And while that quickly evaporated, the formula for redistribution of the revenue involved a three-year time lag, which has cost WA billions of dollars.

The assumption was that, because of its sudden wealth, WA was well placed to fund its own services and give the rest of its GST share to less-affluent states and territories.

Consequently, WA’s refund collapsed to just 30 cents for every dollar it contributed, with the resultant hit to the budget bottom line.

Under the commission’s formula, no other state’s share has fallen below 80 cents. This year, WA’s refund will be 47 cents – up 14 cents on last year.

The Morrison plan provides for WA’s payment to be lifted to 70 cents next year while a transition plan is implemented.

The wealthiest state tag for the GST redistribution will be discarded, with the economically more stable states of NSW and Victoria becoming the new benchmarks to help avoid major fluctuations.

Politically, the strategy is designed to head off federal opposition leader Bill Shorten’s plan to top-up the allocation to WA, with a future Labor government providing an extra $2 billion for infrastructure through until 2022-23.

Mr Shorten has made much of the program, committing to significant projects in key seats considered vulnerable at the next election.

These include Hasluck, held by Aged Care Minister Ken Wyatt by just 2.1 per cent, Attorney-General Christian Porter’s seat of Pearce and backbencher Steve Irons’ seat of Swan (both 3.6 per cent).

No wonder federal Liberal MPs were keen to join Finance Minister Mathias Cormann at a news conference to promote the Morrison package.

While the politics of the GST initiative are uppermost in federal thinking, it should be the parlous condition of WA’s finances that remains the focus for Mr McGowan and Mr Wyatt.

Repeating the irresponsible spending blowout of their predecessors for short-term popularity would be a dereliction of their duty.