Nahan must get back to basics

The May budget looms as an important opportunity for the Barnett government to put its economic house in order.

Treasurer Mike Nahan has drawn on one of Paul Keating’s tactics, while federal treasurer (1983-91) during the Hawke Labor government, in using a colourful turn of phrase to direct attention to the state of the economy.

‘Banana republic’ and ‘the recession Australia had to have’ are just two headline-grabbing quotes Mr Keating employed to demonstrate the country was not in good shape and that change – however unpalatable – was essential.

And given the accolades now directed to the Hawke-Keating management style, the tactic clearly was effective.

Dr Nahan is doing his best to grapple with a state budget in very poor shape. Two of the key revenue factors are, unfortunately for the treasurer, out of his control. The depressed world prices for resources, which have reduced royalties by several billion dollars, and the appalling deal over GST share are both areas where the state has no control.

Even so, when commenting on the Treasury’s mid-year financial projections statement just before Christmas, it was as if all Dr Nahan was delivering was bad news; so he decided to offer some reassuring words.

“This economy is not on the bones of its bum,” he said, poker faced.

Then it was back into economic speak.

He identified the issue that will be kicked around in the lead-up to the election in March next year: how the economy is travelling, and who bears ultimate responsibility for the current position? And while the opposition is preparing to have a field day at Dr Nahan and Colin Barnett’s expense, what is Labor’s strategy for restoring the state’s financial fortunes?

Yes, the budget deficit is tipped to top $3 billion for the first time, state debt is forecast to hit a record $39 billion by 2019 (Dr Nahan says that won’t happen because of asset sales), public service recruitment in most sectors will be frozen until June 30, wages policy will be tightened and health costs will, yet again, be reined in.

Perhaps a genuine assault on the costs of running hospitals – considering the Liberals’ politically strategic but expensive pre-2008 election pledge to retain Royal Perth Hospital – will be Kim Hames’ contribution before he goes as health minister in the next cabinet reshuffle in a couple of months.

The latest Newspoll on voting intentions in Western Australia gives Labor its best result since 2008. It shows the party leading the Liberal-National government 53 per cent to 47 per cent on a two-party preferred basis, with opposition leader Mark McGowan opening up a five-point break over Colin Barnett as ‘better premier’.

The poll has been variously described as a ‘wake up call’ for the government, and a ‘shot in the arm’ for the opposition.

If repeated at an election, the almost 10 per cent improvement in Labor’s 2013 election primary vote would enable the party to gain 10 extra seats in the 59-seat Legislative Assembly – enough for it to take office with a one seat majority.

The challenge now for Mr Barnett and Dr Nahan is to keep a close watch on both revenue and expenditure, with the May budget, the last before the election, being a key factor. There’s no room for the grand financial gesture to soften up jaundiced taxpayers.

Every decision – popular or unpopular – will have to be justified as ‘right for the economy’.

This approach could win back the doubters whose confidence has been rocked by the budget deficits and loss of the state’s AAA credit rating.

Labor also has to demonstrate its own economic credentials. Sure, it will bag the government’s record, but what would it do to restore the state’s financial fortunes? It can’t control world prices or dictate the refund for the GST either.

CommSec’s State of the States report last year, which ranked the strongest economies, had WA third behind NSW and Victoria. But according to a political commentator in a national newspaper, WA’s economy has now ‘collapsed’.

Which is right?

Dr Nahan is adamant there’s still padding on the state’s posterior. Its perceived thickness could decide the government’s fate.