Nahan reins in nervous Nellies

The treasurer wants to get the government’s costs under control and repair the budget without hurting voters.

The state government has been forced to come to terms with two unpalatable possibilities; it will have to preside over big budget deficits until at least the next election, and there’s sure to be a voter backlash against tough measures targeting households and small business to help repair the budget.

Treasurer Mike Nahan didn’t spell out these results in his frank assessment of the government’s financial position at the recent Business News Success & Leadership breakfast, but that was his underlying message.

It’s apparent that Premier Colin Barnett has been prepared to eat humble pie over his bold assertion early in his term that he would never preside over a deficit budget. He appeared on safe ground at the time, but circumstances – essentially beyond his control – changed swiftly.

No-one can be blamed for the slump in royalty income from the state’s major exports – iron ore and liquefied natural gas. But, equally, no-one knows if, and when, the prices will recover to their previous record levels.

The drop in royalty income also coincided with savage reductions in the proportion of the GST being returned to Western Australia.

So big was the gaping revenue hole that the predicted surplus of $175 million in last May’s budget had become a $1.28 billion deficit in treasury’s mid-year budget review, released at Christmas. The tip for next May’s budget is a $907 million deficit, leading to an almost miraculous $304 million surplus for 2016-17.

All the stars will have to be aligned to achieve that result, however.

Dr Nahan has taken note of feedback from the most recent federal budget, which was considered too tough on lower income groups, and the recent Queensland election in which the Liberal-National government was belted for its harsh measures, to justify a softer line.

So households and small business will not be singled out to help fill the vacuum from the drop in royalties and the GST.

But Dr Nahan did explain what he called the ‘workplace renewal policy’, which is designed to recalibrate public sector employment and rein in the wages bill – the government’s single biggest ongoing cost.

According to the treasurer, the wages bill has blown out over the past 10 years. One reason was an increase in the size of the public sector; the other was many of the sector’s more experienced staff had been promoted to higher pay scales to ward off temptation from the better-paid private sector (thanks to the resources boom).

Now when senior officers resign or retire, most agencies will retain 60 per cent of the salary to pay for a replacement. The remaining 40 per cent represents a ‘saving’. Consequently, public sector grades should return to pre-boom levels, recouping $1.3 billion over the next three years.

Ironically, GST grants will also kick-up quickly, without any change to the distribution formula – an extra $2.7 billion over the forward estimates, in fact. The downside could be a $600 million hole over the next few years if a projected increase in gold royalties is blocked.

That’s all hypothetical of course. But the government’s message, mid-way through its second term, is don’t scare the horses.

Morrison on the money

FULL marks to new Social Services Minister Scott Morrison for confronting Australia’s ballooning social welfare budget.

It won’t make him popular, but Mr Morrison has a track record of achieving difficult, but essential, goals other politicians have dodged, including ‘stopping the boats’.

The first move to head off the inevitable day of reckoning over the welfare budget came from the Labor side. It was Paul Keating who managed to introduce industry-based superannuation to ease the pressure in the middle to long term on the age pension.

It meant a big change in the prevailing mindset of the time that, after a lifetime in the workforce, virtually everyone is entitled to the age pension and to enjoy the concessions that go with it.

Many financial advisers actively undermine the pathway to reform, however, encouraging those approaching retirement to arrange their affairs to get the pension and health concessions designed for lower-income earners.

This sense of entitlement was illustrated by a GP who told me he was on the age pension. He hadn’t put money into a superannuation fund during his career because it was impossible (his term) to do that, cover the cost of running a practice and also charge the ‘most common fee’. He was also keen to chat about his recent trip to the Caribbean.

Mr Morrison might be on mission impossible. But if he gets the message across he will have done the country a favour.

Correction

LAST week, I said that if Brendon Grylls contested and won the seat of Hasluck at the next federal election he would become the first WA National in the House of Representatives since the 1970s. In fact Tony Crook was the O’Connor MHR between 2010 and 2013.