19/12/2014 - 05:11

Happy Christmas, Dr Nahan

19/12/2014 - 05:11


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He may be new to the role, but the treasurer has a vital role to play in the fortunes of the Barnett government.

Happy Christmas, Dr Nahan

Treasurer Mike Nahan is set to emerge as the major figure in the government's attempts to get on top of Western Australia's worsening budget position, with his effectiveness key to the Liberal-National alliance's chances of winning the 2017 election.

Dr Nahan has had less than 12 months in the government's second most senior portfolio, but in his hands is entrusted the task of convincing voters that management of the state's finances is still on track, despite the inevitability of delivering the first budget deficit in 15 years.

First, it must be said that when Colin Barnett led the Liberal-National team to an unlikely win in the 2008 election, he inherited an exceptionally strong set of accounts from outgoing Labor treasurer Eric Ripper. The good times, of course, had produced several $1 billion budget surpluses, and Mr Ripper had also applied some restraint on his big-spending ministerial colleagues.

It was remarkably similar to the federal arena, where former Liberal treasurer Peter Costello had handed a sound financial position to his Labor successor, Wayne Swan, in 2007.

The measure of Mr Ripper's performance was state debt, which stood at less than $4 billion. Why does that matter? Essentially it means that the government is not wasting money servicing the debt. Revenue is spent, presumably, more productively.

Two things changed. The first was Mr Barnett's determination not to be remembered as a 'do-nothing premier.

He wanted to get things done. And he has. ­The Perth City Link, shared with the Commonwealth, removed the railway barrier between the CBD and Northbridge; new hospitals are springing up around the state, led by the Fiona Stanley Hospital at Murdoch; the Perth Airport surrounds are getting a long overdue update; and money is being poured into other roads.

All this is good news of course, but it comes at a price. State debt has progressively blown out, and is now well north of $20 billion. Mr Barnett has defended each jump by pointing to the quality of the projects. By and large he's right, although the jury is still out on the Elizabeth Quay development on the Perth foreshore.

He has also invoked the spirit of former premiers Sir John Forrest and Sir Charles Court for his seemingly bold approach.

But when Mr Barnett has set limits in response to attacks on his spending strategy, those limits have slipped away. For example as debt escalated, he would then select ceilings for the size of the debt – but they have proved to be illusory.

He has also been caught by circumstances. While Mr Ripper couldn't believe his luck in the Labor years – the revenue poured in – the opposite has been true for the Liberals. The falling proportion in revenue from the GST – thanks to the Commonwealth Grants Commission's redistribution formula – has been joined by a collapse in iron ore prices, which has hit revenue from royalties.

To make matters worse, the sudden slump in oil prices is expected to blast an extra $1 billion hole in the budget over the next three years. And as the steam comes off the labour market – about 500 workers in the resources sector have been sacked in recent weeks – payroll tax revenue forecasts are starting to look extremely optimistic.

Enter the Michigan (US) born Dr Nahan. He's got the job to sort out the financial problems that have been exacerbated by this government's big spending in the early years, before deciding to hit the brakes 12 months ago. It won't be easy to do that and retain electoral support.

He's going to have to try and emulate former prime minister Paul Keating who, when treasurer in Bob Hawke's government and faced with the challenge of jolting Australians out of their lethargy in 1986, produced his famous banana republic speech.

Mr Keating said unless key adjustments were accepted, 'we will end up being a third rate economy... a banana republic'. It had the desired effect.

Dr Nahan's job is to explain to Western Australians accustomed to budget surpluses (and some of the best times in the state's economic history) that circumstances have changed. The government won't be able to continue to do all the things it has been doing without big jumps in taxes and charges. So something will have to give.

A renowned economic dry, he will need his intimate knowledge of the issues, plus great powers of persuasion and patience, to get the message across.

Years ago, the old political cry when politicians promised big spending programs was: 'Where's the money coming from?' That seems to have disappeared as the credit card mentality gained hold, but it is as true today as it was then.

So Dr Nahan's political skills will be placed under severe pressure. The Labor opposition will see to that, saying they warned the government about excessive spending and were ridiculed. The chickens are now coming home to roost.

Happy Christmas, Dr Nahan.


Dr Nahan will be addressing a Business News 'Success & Leadership' breakfast on Feb 24th 2015


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