03/10/2014 - 05:52

Pulling the state’s budget levers

03/10/2014 - 05:52

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The premier and the treasurer are making some headway in their concerted efforts to rescue the budget.

HIGH-WIRE ACT: Colin Barnett and Mike Nahan are working hard to improve performance in the areas they can influence.

The state Treasury certainly pulled a rabbit out of the hat when it revealed a healthy budget surplus of $719 million for the past financial year. In any normal year that would be lauded as a strong result.

But these are not normal times. In fact, the two leading ratings agencies have stripped the state of its coveted AAA credit status, leading to much soul-searching within the government, and strong criticism from the opposition.

Premier Colin Barnett and Treasurer Mike Nahan, are working furiously to improve the performance in areas they can directly influence, to offset problems, which are beyond their control. And they appear to be making progress in what has all the elements of a financial high-wire act.

First though, a note of caution. Figures can always be used to make the position look better than it really is. But with Dr Nahan on a mission to Canberra pushing Western Australia's case for a better deal on goods and services tax payments, the emergence of the strong surplus could be seen to be counterproductive to his case.

One factor for the improved surplus was spending. It was $550 million below the predictions in last May's budget, with the two big-spending departments, health and education, doing the unthinkable and coming in under budget.

But a more significant cut occurred in the salaries sector, which has been the bane of successive administrations. Salaries grew by 5.2 per cent, the lowest rate for 13 years. As the payroll comprises almost 40 per cent of operating expenses, that represents a considerable saving.

Two factors have contributed here. One is the drop in the size of the public sector work force, as noted in Political Perspective last week.

Treasury gives credit to the "Enhanced Voluntary Separation Scheme" – better known as "redundancy packages" – for the shrinking public service numbers.

The other factor is a tighter wages policy. While executives in some statutory authorities can still achieve handsome pay rises, the minions are being held to cost of living increases of about 2.75 per cent. So long as inflation is contained, that makes the budget's management look good.

But it is the unpredictability of the revenue side, which led Mr Barnett to express doubt on the continued ability to generate surpluses.

The target this financial year is a modest $175 million. And there is no guarantee that the conditions, which generated the latest result, will continue.

First there is the declining GST share – now 37 per cent on a per capita basis. Then there is the hit on projected revenue from royalties, due mainly to the depressed price for iron ore. This is partly offset by the huge volumes being exported.

If a reality check was needed on WA's changed economic circumstances it was provided by payroll tax receipts. The "tax on jobs" produced $50 million less than expected, for the first time in years.

There were two reasons: wages growth across the economy was lower than expected, as already noted; and the movement of workers away from high-paid resources sector construction jobs, towards lower paying industries.

In other words, as the heat comes out of the labour market, the pressure on the government's wages bill will continue to ease. But so will revenue from payroll tax.

Mr Barnett and Dr Nahan will keep pulling all the levers they can find through the rest of their term to ensure the budget stays in surplus.

Politically, the alternative is not worth contemplating.

Perth's first toll road

One of federal Treasurer Joe Hockey's solutions to WA's financial problems is the introduction of toll roads, which have been a feature of revenue raising on the east coast for years.

For example, crossing the Sydney Harbour Bridge attracts a toll, which was originally imposed to help pay for its construction.

Colin Barnett has poured cold water on the introduction of tolls for private motorists. But there is the possibility of a charge for trucks to help recover the cost of new roads in the southern metropolitan area.

But Perth road users have had to pay tolls in the past.

In fact, the Perth Causeway, at the eastern end old Adelaide Terrace, attracted a toll when it was opened in 1843 – 14 years after the founding of the Swan River colony.

The charges ranged from one penny (one cent) for pedestrians, to sixpence (five cents) for a horse-drawn cart.

A 50 per cent surcharge applied at night. The tolls were eventually removed, although the exact date is unclear. However, the Causeway is still believed to have been the city's only toll road.

Truck operators would not welcome having to pay extra to use certain roads. But should that happen, at least the Barnett government can defend itself against the charge that it introduced toll roads to Perth. There is a precedent.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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