25/09/2013 - 06:34

Knee-jerk reaction a worry

25/09/2013 - 06:34

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Knee-jerk reaction a worry

The state government was caught by surprise last week when ratings agency Standard & Poor's cut Western Australia's long-term rating from AAA to AA+.

The move wasn't a complete shock, since S&P had previously announced the state's rating was under review.

But Premier Colin Barnett has admitted the timing of the decision came as a surprise.

He must also have been disappointed by the commentary that accompanied the decision, with S&P citing "limited political will" to get the state's finances under control.

That was hardly surprising after the government reversed two of its recent budget decisions, on solar feed-in tariffs and public school fees for the children of 457 visa holders.

Mr Barnett responded by talking tough, saying there would be "widespread and all-embracing" spending cuts, along with asset sales.

That kind of rhetoric should not come as a surprise from a Liberal premier, but it did signal a change of tone for Mr Barnett, who has not previously shown any enthusiasm for privatisation.

It was followed a day later by his call for a review of the GST, suggesting Australians wouldn't mind if the rate was lifted to 12.5 per cent if that helped deliver high-quality health, education and other services.

Later, for good measure, Treasurer Troy Buswell floating the idea of the state regaining some income tax powers.

Putting these responses together, it looks like the government is open to all possibilities.

However what Mr Barnett and his government have failed to deliver is a carefully considered strategy to address some major structural problems in the state's finances.

On the revenue side, there are two major problems – the state's growing reliance on volatile mining royalties, and its declining share of GST distributions from Canberra.

Both are difficult issues, but they were also predictable.

What has also become predictable is the state's failure to control its recurrent spending.

As the Chamber of Commerce and Industry has pointed out, recurrent spending has grown by 10.1 per cent per annum under the Barnett government.

Combined with a record capital works program, the net result has been a very large increase in state debt.

On the spending front, the government has put a lot of focus on its so-called efficiency dividends.

That effectively pushes all the hard work on to public servants, who have to find savings.

What have been lacking are policy decisions by the ministry, which should be thinking hard about the role of government and looking at spending programs that could be abolished.

On the privatisation front, Mr Barnett has already ruled out the sale of Western Power and the Water Corporation, but some of their assets, such as desalination plants, may be sold.

He has also ruled out selling the TAB, claiming it is a public service, and GoldCorp, saying it has a special status because it has the right to issue currency. The Reserve Bank, which is responsible for issuing currency, might take exception to that comment.

More generally, Mr Barnett says there will be asset sales "but they will not be the sort of assets that impact in any way on the general public".

This is a curious stance, especially for a Liberal premier; it confuses the ownership of assets with the regulation of markets.

The proper role of government is to ensure services, including energy, water and ports, are properly and reliably delivered to the public.

In some cases, it can make good sense for the state to also own the utilities that deliver these services, but each case should be judged on its merits.

The lazy option for the government is to simply defer capital works projects that are on the drawing boards.

But that isn't a sensible strategy. It completely fails the test of priority setting, putting short-term opportunism ahead of the state's long-term priorities.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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