18/02/2021 - 14:30

Project WA outlines plan for prosperity

18/02/2021 - 14:30

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The Mannkal Economic Education Foundation has launched Project WA, which sets out a free-market microeconomic agenda for the next state government.

Project WA outlines plan for prosperity
Another boom-and-bust cycle is likely in WA, writes Josh Adamson. Photo: Mannkal

At some point during its next term, the Western Australian government will be confronted by significant economic challenges. Iron ore prices will soon fall, once-in-a-generation cash handouts will subside, and sector-specific fiscal stimulus will conclude.

In response to these headwinds, and ahead of the March 13 election, the Mannkal Economic Education Foundation this week launched Project Western Australia. The project sets out a free-market microeconomic agenda for the next state government to secure WA's next generation of growth and productivity.

Microeconomic reform is always a difficult sell for politicians. Policies which aim to change individual and business incentives are less attractive to voters than those which promise “more infrastructure” or “better education”. All reform involves winners and losers. Although society may be better off as a result of a particular reform, vocal minorities commonly have a disproportionate impact on outcomes.

In order to provide a permanent vehicle for economically-sound policy in Western Australia, Project WA calls on the state government to build capacity to expand microeconomic reform options. Establishing a state-based Productivity Commission is one way to achieve this. Ideally, the body would provide an independent voice which advocates for policies which make economic sense but have lacked the political support and voter awareness required to drive reform.

Transitioning WA away from stamp duty and towards a broad-based land tax is one of these common-sense reforms. Reform in this area is widely supported by economists but has encountered significant political hurdles. The ACT and NSW have implemented land tax reform fairly recently and it is important to capitalise on this momentum in WA. Mannkal favours reform which would introduce land tax immediately and give recent buyers a partial credit for any stamp duty they’ve paid, because short transition periods reduce the risk of the policy being captured by political interests. It would also avoid the distortions which will likely be created in New South Wales, given their “opt-in” land tax transition plan.

Looking forward, Project WA calls for our government to “Be ready for prosperity”, as Western Australia’s cyclical, commodity-based economy means another boom-and-bust cycle is likely. Despite best intentions, politicians are ultimately driven by self-interest, and it is rare that economic upswings are not accompanied by swelling government balance sheets if controls are not put in place beforehand. Constitutional fiscal constraints are one mechanism which could be employed to achieve this.

Being ready for prosperity also requires a government which facilitates the development of new industries as new technologies become available. The rise of the gig economy over the past decade, despite commentary, is not particularly exceptional. The development of innovative business models or products replacing inferior goods has been coursed throughout history. Regulation may be warranted in some cases, however, it should be focused on improving the welfare of consumers, rather than protecting the interests of big business or those currently employed. Having a general, pro-market framework which stresses this organic approach to new legislation will ensure more efficient and equitable outcomes for Western Australians.

It is important, however, that facilitation of private sector activity is not confused with affording special dispensation to certain pet projects or industries chosen by the government of the day. The concentration of authority has achieved great outcomes in our state, however special consideration given for commercial ventures of any kind is distortionary and often involves transferring considerable risk from private firms to taxpayers. On balance, if the next government follows Project WA’s recommendations, they will be able to facilitate significant investments into the state without forcing taxpayers to shoulder liability.

The need for sound economic reform never ends and now is the best opportunity the state will likely enjoy for many years. Lasting wealth and prosperity will not come through a reliance on mining royalties or federal spending, and will be hampered by overbearing red- and green-tape. The proposals put forth in Project WA underpin a pro-growth agenda championing the power of markets, businesses and individuals which will drive enduring prosperity in our great state. We ask you to give our arguments your consideration for the sake of another generation.

  • Josh Adamson is the research manager at Mannkal Foundation.

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