It’s still the economy, stupid

Troy Buswell and Ben Wyatt face off at the WA Business News debate on Tuesday. With high state debt, big infrastructure plans and credit rating warnings, who will better manage the challenges ahead?

JAMES Claville, former US president Bill Clinton’s campaign adviser, famously coined the phrase “it’s the economy, stupid”.

The phrase was meant as an internal warning to focus Clinton’s campaign themes in the 1992 presidential race against George Bush senior that was being fought against the backdrop of a US recession.

While Western Australia is at the opposite end of the economic cycle, the same mantra should be adopted by both major parties in the final stages of the state election campaign.

At next week’s debate both Treasurer Troy Buswell and Labor’s treasury spokesman, Ben Wyatt, will be trying to convince voters it is they who will be the most responsible and best able to manage the state’s finances over the next four years.

The Liberals have traditionally held the wood over the Labor Party in regards to the public perception of who makes the best financial manager. The Liberals are fiscal conservatives while Labor is a free-spending borrower.

But the reality of the management of WA’s finances over the past decade does not necessarily support this assumption, given the state’s surge in public sector debt.

State debt has become a crucial issue over the past week due to the warning by ratings agency Moody’s that WA’s AAA credit rating is at risk.

The risk that Moody’s has highlighted is not yet due to the extravagance of either side’s election commitments but is sharply focused on the government’s ‘Big Picture’ liking for expensive debt-funded infrastructure projects and the underwriting of low-return investments around Royalties for Regions.

The risks to the state’s future economic health have been somewhat camouflaged by the activity and excitement flowing from the high levels of public and private sector spending.

The government has been clever at focusing the community’s attention on the glossy images of new stadiums, new trains, cranes and diggers and away from the realities of how we are going to repay and manage these large debts.

The reality is that the state’s debt has risen from $3.8 billion in 2008 to an estimated $23 billion by 2014-15 - the biggest increase in WA’s history.

Retiring opposition leader Eric Ripper was much maligned during his tenure as treasurer but, like former Liberal federal treasurer, Peter Costello, he left the state’s finances in pretty good shape, especially his decisions to pay down debt to some of its lowest levels.

This may well prove to be Mr Ripper’s greatest legacy for the Labor Party, because it is proving very difficult for the Liberal-National coalition to gain a credible ascendancy on the issue of responsible financial management, given its free-spending ways.

While the state’s growing economy and population are legitimate drivers of the need for greater borrowings, a large contributor to the growing debt bill is the infrastructure decisions made by the current government over the past four years.

This issue was aptly highlighted by former under treasurer and head of the Football Stadium Taskforce, John Langoulant, when he responded to Labor’s plans to build the stadium at Subiaco, his committee’s preferred site.

Mr Langoulant said the government’s decision to relocate the stadium to Burswood had been an option rejected by his committee because it was too expensive (especially the associated $300 million cost of public transport) and the risks and costs of the site due to its history as a rubbish tip.

If the Liberal’s win the poll on March 9 and the stadium is built at Burswood at the more than $1.2 billion cost estimate, then there is every likelihood sports fans will be paying among the highest-priced tickets in Australia to enjoy the luxury of the nation’s best sports stadium.

For business in WA, the balancing of the demands of spending and debt means that real reform of the state’s tax system, especially the burning issue of payroll tax, is unlikely to get any meaningful attention.

Payroll tax is expected to net the government more than $3.3 billion this financial year -up more than $700 million on the $2.6 billion earned in 2010-11 - and is expected to increase to $4.6 billion by 2015-16.

With numbers like these, it becomes pretty clear where the government and the opposition (with its big-ticket rail promises) intend to find the money for the infrastructure promises and in meeting our future debt obligations.

Claville was right, it is the economy, stupid. But one wonders at what price it may well come for businesses and taxpayers after the poll.