Pressure mounts on state spending

The mid-December budget review will set the tone for state government spending cuts before the 2017 election.

Australia’s richest woman has given the state government some unsolicited advice on how to resolve its budget problems, which are growing worse by the day.

Gina Rinehart used her address at a recent book launch to deliver the simple message that Premier Colin Barnett and Treasurer Mike Nahan need to ‘cut spending’.

Of course Mrs Rinehart faces her own financial challenges, with the imminent commissioning of the $10 billion Roy Hill iron ore project amid depressed ore prices.

After offering up that gratuity to the government, she happily signed copies of the book written by her friend and Liberal MLC, Robyn McSweeney.

The book tells the extraordinary story of Ms McSweeney’s great grandfather, Albert Cockram, who was Western Australia’s ‘Mr Racing’ early last century. He also owned the Belmont Park and Goodwood racecourses, which he leased to controversial Melbourne business identity John Wren. Appropriately, the book was launched on race day at the Ascot Racecourse.

While the turf can be an expensive gamble, it appears the government has been gambling taxpayers’ money with gay abandon, if the latest Treasury report on WA’s finances is any indication.

The budget returned an operating deficit of $1.1 billion for the September quarter, compared with a $347 million deficit for the same period last year. It’s clear there’s a financial crisis, and that urgent action is required.

One obvious area for attention is health, which continues to successfully elude all efforts to contain runaway spending increases.

Kim Hames, who has been health minister since 2008, outlined the increased pressure – and his government’s unsuccessful efforts to contain the running costs of major public hospitals – in parliament recently.

“We as a state cannot afford for hospitals to spend well in excess of their allocation, which is allocated recognising that they have an increase in demand, and still they spend well over that,” Dr Hames said.

“We cannot afford it. Since we have been in government, we have gone from a budget of $4.5 billion a year to over $8 billion now. We have gone from 24.5 per cent of the total state government spend (on health) to over 28 per cent of total state government spend now. We cannot afford our spending to keep going up without the activity going up.”

Dr Nahan even floated the idea of a public sector wage freeze to help contain costs. But that’s unlikely to get much support around the cabinet table just 16 months out from an election.

Slower economic activity means the government actually has less money to spend.

“Revenue for the three months to 30 September 2015 totalled $5,907 million, $446 million (or 7 per cent) lower than the same period in 2014-15,” the Treasury report said. 

“This is the largest quarterly contraction in general government revenue on record.”

Income from royalties was down $155 million on last year, transfer duties from properties dropped $102 million, land tax was down $45 million, payroll tax fell $24 million) and the GST grant was down $85 million.

Noting that WA’s share of the GST revenue this year will be a historic low of 30 per cent of its population share, the Treasury delivered its punch line.

“The September 2015 grant of $479 million is the lowest quarterly grant since GST arrangements were introduced in 2000,” it said.

There is one bright spot for the government, although one not welcomed by owners of investment properties.

Dr Nahan announced a ‘new, flatter land tax scale’ in the May Budget, noting that it would deliver an extra $184 million this financial year, and a total of $826 million over the next four years.

But many landholders were shocked recently when they received their tax bills for 2015-16. The Labor opposition claimed some jumped by as much as 97 per cent.

Mr Barnett defended the increase, saying the government had no alternative after the collapse in the GST money coming back to the state. In fact by siphoning off $3.7 billion from WA, the Commonwealth was ‘taxing WA to fund other states’, the premier claimed.

Mr Barnett said he regretted the land tax impact on individuals, but added: “I am sure that a number of people who have multiple properties will sell some of those properties; they will rearrange their portfolios. That is the reality we face.”

And the government will have to face up to some realities in the coming months. The next major update will be the budget review in mid-December. That will spell out the challenges to which Dr Nahan must respond.  

Don’t expect to hear the word ‘austerity’, but there could be some unpalatable initiatives which, given the relative good times of the past 15 years, won’t be well received.

Of course it’s one thing for Mrs Rinehart to advise a cash-strapped government to cut spending; it’s quite another to decide where those cuts should fall, given the consequent political damage.