03/03/2015 - 16:09

Nahan determined to balance the books despite few tools in his kit

03/03/2015 - 16:09


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Treasurer Mike Nahan, who is coming up on a year in the job later this month, spoke to an audience of nearly 500 at a Business News Success & Leadership breakfast last week.

Nahan determined to balance the books despite few tools in his kit
BUDGET BOOM: Mike Nahan says 23 per cent of the state’s revenue comes from royalties. Photos: Attila Csaszar

Treasurer Mike Nahan, who is coming up on a year in the job later this month, spoke to an audience of nearly 500 at a Business News Success & Leadership breakfast last week.

Treasurer Mike Nahan says he has a limited number of options at his disposal to balance the state’s budget, but is driving a series of innovations to ensure the government returns to the black in time for the next election in 2017.

At last week’s Success & Leadership event, Dr Nahan reiterated that there had been a dramatic slide in revenue due to falling royalties and the state’s declining GST allocation.

While the immediate outlook for both revenue streams looked bleak, the Treasurer said he would focus on the latter, which was subject to domestic political forces rather than global economic ones.

Dr Nahan said despite these woes the state government would not hit families or small businesses in an effort to balance the books.

He flagged his intention to meet his federal counterpart, Joe Hockey, later this month to argue his case on the GST distribution.

A key problem to tackle would be the treatment of royalties, he said, which were averaged over three years by the Commonwealth Grants Commission when determining the distribution, creating a lag in payments.

“The Grants Commission process is really designed to equalise revenue and expenditure capacity across the country,” Dr Nahan told the Success & Leadership audience.

“It was never made to have differences like we have now between Western Australia and Tasmania.

“Our share is determined to a large extent by iron ore revenue three years ago, so it’s a moving average adjustment.”

The commission also failed to take into account WA’s investment in economic development, according to Dr Nahan, who formerly led the Institute of Public Affairs think-tank.

“We’ve invested a huge amount of money into little Onslow,” he said.

“It had 600 people in that little village and we plonked down next to it a $35 billion LNG plant with 15,000 workers.

“We’ve had to refresh or renew or rebuild that place and the Grants Commission doesn’t take that into consideration because other states never had anything like it.”

Last December, the state government announced it would spend nearly $70 million improving amenities in Onslow, including replacing the town’s 49-year-old hospital and redevelopment of the Onslow airport.

With the state government continuing its opposition to congestion charging and ruling out other tax increases, the Treasurer will need to make a good sales pitch to Canberra.

Dr Nahan said he wanted his federal colleagues to lobby the party leadership to back this change on to the GST distribution, acknowledging that improvements on the revenue side of the ledger would be reliant on Canberra.

“Without an improvement in the GST share, which would be logical, fair, and from a business perspective, adroit, because WA is where the nation makes its money, it’s hard to see a recovery in tax revenue,” he said.

Dr Nahan confirmed that a planned increase in the payroll tax threshold would go ahead, but a year later than originally planned.

He again ruled out selling major utilities, arguing the Water Corporation would be difficult to regulate and Synergy was heavily subsidised and hence not yet ready.

Premier Colin Barnett had said he wouldn’t sell Western Power, which owned the state’s poles and wires, the Treasurer said.

Nonetheless, plans are under way for a second round of asset sales, although Dr Nahan said the government would be cautious in this space.

“We have an asset sale program that’s out there, it’s a tentative first step,” he said.

He described the proposed sale of Utah Point at Port Hedland as testing the water, along with the Canning Vale markets site.

“We are looking at a whole range of other ones; we do have to sell assets to reduce the debt levels,” Dr Nahan said.

However, with the state’s largest assets off the radar it will be difficult for the Treasurer to pay down the state’s debt – forecast to hit $30 billion in net terms by 2017-18 – without running substantial surplus budgets; a task made harder with a current $1.3 billion deficit and a $907 million deficit expected next year, based on the government’s mid-year review.

With its income stream drying up, Dr Nahan said the government was focused on keeping its own costs down, with a tightening wages policy, reduction to the public service, banking of lower capital costs, and reform of the budgeting process highlighted as the key savings areas.

“We’re looking at a whole raft of reforms, including two I’m very proud of,” he said.

“We’re going back to zero-based budgeting on one department after another; we’ve announced seven where we sit down and look at what it does, in detail with a group of experts from outside.

“We’ll go back to every aspect of every department and look and re-evaluate what they need to do.”

A zero-based budget would require departments to justify every item of expenditure, with the budget tailored to meet an objective for a period.

Announced in the mid-year budget review, the Department of the Attorney General, Department of Commerce and Department of Finance are among those under scrutiny. Savings will be announced in the upcoming budget.

Dr Nahan said the state government would also work to reduce public sector wage growth to 2.1 per cent, after more than 8 per cent annual growth in the decade to 2012.

There was a net reduction of around 1,500 public servants in the previous financial year, and the treasurer expects a similar reduction this year.

The voluntary separation scheme announced in October and the government’s workforce renewal policy will deliver a combined expenditure reduction of about $1.5 billion across the forward estimates, according to treasury documents.

The government’s record capital works program, around $6.5 billion this year, will also be trimmed, without programs being cancelled. “We’ve noticed, just like the private sector, a substantial reduction in the cost of building,” Dr Nahan said.

This would harvest a cost reduction of around 20 per cent, while the program would create 82,000 jobs.

“So we got hit with the revenue (fall), and we are going through there and making major changes to the public sector just like businesses have been doing and are doing in their own sectors,” Dr Nahan told the Success & Leadership forum.


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