24/06/2010 - 00:00

High hopes for mining-generated revenue

24/06/2010 - 00:00

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The mining boom has accentuated a new kind of fiscal discipline on governments, with electorates seemingly demanding a link between windfall gains and concrete objects.

The mining boom has accentuated a new kind of fiscal discipline on governments, with electorates seemingly demanding a link between windfall gains and concrete objects.

The former state Labor government seemed to understand this when it sought to pay off the debt linked to the Mandurah railway, even though such a connection stands up to little scrutiny when Western Australia’s balance sheet is viewed in its entirety.

Nevertheless, the approach was adopted by the WA Nationals which campaigned on their Royalties for Regions (R4R) policy that demanded 25 per cent of the revenue gained from royalties be spent in the regions from where it was predominantly derived.

The policy, which promised money over and above what would normally be spent in the regions, was a winner for the Nationals, giving the party of the balance of power in state parliament and key seats in Premier Colin Barnett’s Cabinet.

The biggest area of R4R spending is the Pilbara, where the policy is strongly connected to physical results such as land developments, town centre revitalisations, hospitals and apartment blocks.

The softer stuff also exists, such as operational spending in key areas like education, but there are far fewer headlines from that spending.

A very obvious example is the newly created Office of the Pilbara Cities, which was revealed last week in WA Business News. This week, Regional Development Minister Brendon Grylls announced the office will be headed by Port Hedland CEO Chris Adams.

Clearly, political leaders think there is mileage in making such linkages. Presumably voters question the ability of governments to spend taxes wisely. Perhaps they want to see evidence that bigger revenue for government doesn’t just mean bigger government.

The idea was not lost on Prime Minister Kevin Rudd and Treasurer Wayne Swan, whose resource tax bid was launched on the premise of increased superannuation, lower company tax and better funding for health as the population ages.

Maybe that was not specific enough for the voters. Polls since the tax launch show the government is on the nose, especially in WA and Queensland where mining is a big part of the economy.

Belatedly Mr Rudd tried his own R4R-style scheme, proffering a big slice of a $6 billion resource-tax-generated infrastructure fund to those two states.

At a speech to the Perth Press Club on June 9, the prime minister said WA should expect more than $2 billion in additional infrastructure investment from this fund.

The fund is focused on rail, roads, ports, and other infrastructure to support the workforce in mining regions and in communities that support mining regions.

Those regions have been screaming out for this kind of expenditure but the announcement has yet to translate into positive polling, suggesting that there is a limit to this kind of pork barrelling, as with any other.

Mr Barnett is not immune from the concept either.

After 12 months of discussions the state government reached a new agreement with BHP Billiton and Rio Tinto about iron ore royalties as part of the companies’ efforts to merge their Pilbara operations.

From July 1, BHP Billiton and Rio Tinto’s royalty rates for iron ore fines will change from 3.75 per cent to 5.625 per cent to bring them in line with other iron ore producers, and the companies will be able to integrate their Pilbara operations.

This will generate an additional $340 million in state royalties for the 2010-11 financial year.

But that wasn’t all. Under the deal the companies will also make a joint one-off payment to the state of $350 million, which Mr Barnett promptly linked to a major piece of social infrastructure.

“I’m very pleased to confirm the $350 million one-off payment will be placed in a special account for the new children’s hospital, which is due to begin construction in 2012 and due to be completed by 2015,” Mr Barnett said.

Mr Barnett added, more vaguely, that some of the additional revenue generated by the increased royalty rates would also go towards the new hospital that will replace ageing Princess Margaret Hospital for Children in Subiaco, which celebrated its centenary last year.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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