11/04/2013 - 06:54

Mugged by financial reality

11/04/2013 - 06:54

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Get ready for some belt tightening in the next state budget. The fact that it will be introduced in August, three months later than usual, will provide only temporary respite, with all the signs suggesting there won’t be much extra money being thrown around.

Get ready for some belt tightening in the next state budget. The fact that it will be introduced in August, three months later than usual, will provide only temporary respite, with all the signs suggesting there won’t be much extra money being thrown around.

Regardless of whether they decide to divert some of the annual $1 billion plus Royalties for Regions treasure chest to mainstream country projects, Premier Colin Barnett and Treasurer Troy Buswell have been mugged by financial reality, and the revelation that some of their election promise costings were a bit rubbery.

The government will need all the time it can get to produce a timetable for the implementation of its key promises, and take into account some sobering news from its political allies in Canberra.

Top of the list is the pledge to build the MAX light-rail network and the Perth Airport rail link, which have funding challenges of their own beyond the state’s control.

The Liberals got away with the fact, which only surfaced days before the March poll, that they expected more than half the money to come from the federal government.

Cold comfort then that federal opposition leader Tony Abbott said last week that it was not Canberra’s job to fund state rail projects – effectively inviting federal Labor to take the opposite view. Mr Abbott was referring specifically to an approach from Victoria, but the message was clear. Roads, of course, were another matter.

While Mr Buswell was still absorbing that signal (did he seek advice before the poll?), the implications of senior federal Liberal Malcolm Turnbull’s comments on the goods and services tax should not be lost either.

He had this soothing advice for Tasmanians, the major beneficiaries of the GST redistribution. Under a coalition government, he said, “Tasmanians will be absolutely no worse off in terms of the GST, that is a given.”

Mr Turnbull knows better than most that the GST allocation is a zero-sum game. In the present climate, if one state gets a better deal, it has to be at the expense of another, which obviously would not take any cut lying down. And the coalition already holds 12 of WA’s 15 federal seats, and could win more in September, even under the present GST formula. However there are no federal Liberals from Tassie in the House of Representatives – a situation the party would like to correct.

So there doesn’t appear to be much joy there for WA.

Mr Barnett and Mr Buswell must also factor in the 14 per cent pay rise for nurses they awarded early in the election campaign to ‘buy’ industrial peace. The offer came out of the blue after the government had been insisting that a 12.75 per cent increase over three years for the labour-intensive industry was all that could be responsibly afforded. Except in an election climate.

The extra cost is an estimated $71 million over three years. But it doesn’t end there, as the expectations of all public sector unions, with prison officers at the head of the queue, are immediately lifted, to ensure – they insist – pay relativities are at least maintained.

And this highlights the government’s budgetary challenge. Helped by the nurses’ pay decision, salaries and general running costs continue to race ahead, despite some progress at curbing their growth early in the government’s first term. On the other hand, royalty revenue is now largely reliant on external factors. Small changes in resources prices, and the exchange rate, for example, can knock off (or add) hundreds of millions of dollars.

It is an issue the ratings agencies are watching closely. WA is on a ‘ratings watch’. A wrong move could jeopardise the coveted triple-A rating.

So it’s no wonder the state budget has been delayed, with Mr Buswell now walking a financial tightrope.

One easy, but unpopular, option is to raise taxes and stamp duty. The urge to do so is always strongest straight after an election win, with the hope voters eventually forgive and forget.

The official reason for the budget’s delay is that the state election interfered with the preparations. But that doesn’t wash with Richard Court’s finance minister, Max Evans, who was instrumental in changing the timing of the budget’s delivery from September to May 1993, so that it could be passed by parliament before July 1 (the new financial year).

Mr Evans, a chartered accountant by profession, says the deferral sends the wrong signal for “orderly financial management” adding: “The bureaucrats do the work ... not the ministers.”

The delay, which is much longer than had been anticipated, again places in sharp focus the defects linked with holding the election on the second Saturday of March, every fourth year.

Switching the date to a Saturday in November, and having both houses of parliament dissolved at the same time, makes far more sense. And there would be no need to tinker with the budget date.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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