Getting the budget balance right

The imminent federal and state budgets will hold the answers to two crucial questions.

First, how long Malcolm Turnbull remains as prime minister, and second, whether Premier Mark McGowan’s government can convince voters the co-called economic ‘green shoots’ are real.

After almost three years of drift, the federal coalition has been blessed with a pre-election revenue surge.

How it applies the extra billions of dollars – tax cuts loom large, as do judiciously applied spending initiatives – and retains the budget’s integrity will decide its fate.

A recent CommSec survey of how the states are performing (with Western Australia at the bottom of the pack) and disappointing employment figures suggest the state government has been effectively marking time, despite stressing that job creation was its top priority.

Unlike most states, the federal government retains some flexibility over election dates.

The one restriction is that, with maximum three-year terms, the next poll must be held by mid 2019.

News of the revenue surge on the eve of the last poll before the budget has provided a boost for Mr Turnbull and Treasurer Scott Morrison.

After months of being forced to react to an increasingly confident opposition leader Bill Shorten, they can now dispense some largesse of their own, without being seen to be financially irresponsible.

Take the prime minister’s recent visit to Perth, for example. More than $3 billion in federal money was earmarked for significant projects across the metropolitan area, including one of Mr McGowan’s pet programs, the Metronet rail plan.

It should be noted many of the projects just happen to be in key Liberal electorates such as: Hasluck, held by Ken Wyatt by 2.1 per cent; Pearce (Christian Porter, 3.6 per cent); Stirling (Michael Keenan, 6.1 per cent); and Canning (Andrew Hastie, 6.8 per cent). The Liberals are undoubtedly sandbagging these seats against a strong Labor challenge.

Politics aside, the commitments show just how far coalition governments have moved in their relations with the states.

During the Howard years (1996-2007), when federal revenue surged thanks to booming prices for Australia’s major exports, very little was committed to infrastructure such as railways and ports at a time when WA was under enormous pressure to cope with increasing demands, including from rapid population growth.

Then Tony Abbott, after being elected prime minister in 2013, left Liberal premier Colin Barnett and his government high and dry by refusing to commit federal money to metropolitan rail projects.

For some unknown reason, new roads were considered more worthy.

Now Mr Turnbull, a disciple of his former business partner and NSW Labor premier Neville Wran’s line: ‘Give ’em a train, they love trains’, is happy to invest in rail.

With WA seen as a key state in Mr Turnbull’s battle to win a third term for the coalition, and getting increasing attention when it comes to federal handouts, Mr McGowan could not be happier.

He already has a promise of a $1.6 billion top-up in federal grants should Labor win power in Canberra. So it could be said that, whichever way the federal poll goes, Mr McGowan (and WA) is the winner.

But that places extra pressure on the premier, and Treasurer Ben Wyatt, to produce a strategy for genuine economic recovery.

The latest unemployment figures – showing the seasonally adjusted rate had jumped to 6.9 per cent, the worst in 16 years – and the CommSec report, which placed WA last in economic performance, strip away the pious comments that the economy has turned the corner.

So Mr Wyatt has a major challenge. He still faces a projected deficit for 2018-19 of $915 million, and so must achieve a delicate balancing act – increase revenue without an undue extra burden on householders and business.

For example, a jump in payroll tax (a major revenue source) in the current climate would make no sense.

On the other hand, privatising the land title registry Landgate, which could raise $2 billion, and the TAB, is tempting.

Much is at stake with the two budgets. Failure to get the balance right could mean curtains for Mr Turnbull in Canberra, and more hard slog for Mr McGowan’s team here in the west.