OPINION: In WA and on the national stage, the men in charge of the purse strings face challenges of control and confidence.
Federal Treasurer Josh Frydenberg and his Western Australian counterpart Ben Wyatt are winning the battle to return their budgets to surplus. Their next challenge is to restore confidence among investors and consumers, and achieve healthy growth in their respective economies.
With a surprise election win behind him and a three-year term ahead, one of Mr Frydenberg’s first jobs will be to legislate for promised $158 billion income tax cuts. Theoretically that will stimulate demand, provided the beneficiaries have the confidence to spend rather than put their modest windfall in the bank.
Will that, combined with the Reserve Bank of Australia making borrowing cheaper by cutting the cash rate to a record low 1.25 per cent, help provide the kick start for more growth and more jobs? Fingers crossed on that one.
At the state level, no-one was happier than Mr Wyatt when unveiling last month’s state budget. WA’s finances were heading back into the black earlier than expected, and a start could be made hacking in to the mountain of debt inherited from the free-spending Barnett years.
The much-needed financial discipline he and Premier Mark McGowan imposed after Labor’s election in March 2017 has borne fruit. Modest public sector pay rises have been maintained (MPs and senior public servants have had pay frozen) and the workforce has been cut.
All good. But what is undeniable is that people are still reluctant to spend. The evidence is there for all to see, from the slump in property prices to the ever-increasing number of ‘vacant’ signs in shop and restaurant windows.
In all the pre federal election debate about the need for pay increases – former Labor leader Bill Shorten said the election would be a referendum on wages – the WA Labor government’s wages policy flew below the radar. No-one pointed the finger at the government and noted it was applying the exact wages policy that Mr Shorten was accusing the big end of town of implementing. That’s politics.
Mr Wyatt and his Treasury advisers were obviously chuffed at the latest upgrade on state finances from ratings agency Moody’s. The ultimate aim is to have the AAA rating, lost under Colin Barnett’s government, restored as quickly as possible. That would signal the finances are in good shape and lead to a reduced interest bill on the debt. As it is, the recent upgrade will cut the annual interest bill on the debt by $24 million.
But if it wasn’t for the high iron ore prices that are expected to run for longer than the budget anticipated – pouring hundreds of millions of extra dollars into the state’s coffers – and the better GST deal with the Commonwealth, state finances would still be in big trouble.
Mr Wyatt and Mr McGowan have been adamant that their tight-fisted approach will run through the full four-year term, up to March 2021. And Labor-affiliated unions have been extraordinarily accepting. But a return of vigorous union campaigns for more pay could well hasten Labor’s demise, and the return of the Liberals, which is hardly a welcoming prospect at Unions WA.
However, Mr McGowan did campaign during 2016 on a Labor government’s capacity to create jobs. And while the workforce has increased, the state’s unemployment rate is consistently higher than the national average – and at times the highest of all the states – hardly a ringing endorsement of the jobs promise.
All this makes the premier’s recent boast that 150,000 jobs would be created over the next five years seem extraordinarily courageous.
If the real estate industry is to be believed, the property market dodged a bullet with the defeat of federal Labor, which promised to end negative gearing.
And there are promising signs of a more measured approach from Canberra for key national industries such as coal, with implications for Collie.
The task for Mr Frydenberg and Mr Wyatt is to produce credible programs for economic recovery that both business and consumers can confidently accept. Loosening the purse strings, while maintaining budget surpluses and promoting improved productivity, would be a good start.