WA budgets on self-interest

With Western Australia’s McGowan Labor government announcing a budget surplus hard on the heels of the federal government’s record deficit, the claim we are all in this together is starting to ring hollow. The stark difference between the federal and WA budgets raises the question of whether state governments have been too willing to leave the heavy lifting to the commonwealth. The exception is NSW, where the borders have been kept open and the economy has been kept largely intact. The Labor states of Victoria, Western Australia and Queensland, by comparison, have been standouts for their insular behaviour.

Victoria is a particular case given the Andrews government’s dreadful performance in containing a second wave of COVID-19. A demand that the commonwealth give Victoria special financial assistance through a higher share of GST to compensate for state government incompetence is breathtaking. So is the shameless politics being played by Queensland Premier Annastacia Palaszczuk in keeping her state borders shut for what clearly appears to be reasons of perceived electoral advantage. Likewise, Mr McGowan has said West Australian borders remain closed to ensure that state residents spend their tourism dollars in WA, something Scott Morrison said was tantamount to economic protectionism.

Mr McGowan doubled down on Thursday, claiming WA’s unique budget surplus justified the state’s contentious hard-border policy. There is some merit in the argument that by protecting the iron ore industry and regions from the first wave of the pandemic the WA economy has helped to keep the national accounts afloat. Both WA and the commonwealth are benefiting from the state’s ability to profit from higher iron ore prices that result from a squeeze on global supply because of the pandemic.

The WA forward estimates show that while iron ore exports are expected to remain steady at about 850 million tonnes across the next few years, the iron ore price is expected to fall from $96.60 a tonne this year to $64 a tonne in 2021-22 as the supply squeeze eases.

The headline figures in the WA budget are for a surplus of $2.21bn this year falling to a deficit of $3.39bn in 2021-22 before coming back into surplus in 2023-24. State revenue is forecast to grow from $32.16bn in 2019-20 to $34.1bn in 2020-21 before retreating slightly to $31.6bn in 2022-23. WA’s strong balance sheet has allowed it to splash out on the biggest infrastructure splurge in WA history rather than pay down state debt.

It is good news for Western Australia but raises difficult questions about the national implications of its successful campaign for a greater share of GST receipts be returned to the state. In the past, booming iron ore prices had resulted in reduced GST payments to WA. The introduction of a floor of 70c in the dollar of GST collected will see WA pocket an additional $3.3bn across the next two years.

During his National Press Club address this week, Josh Frydenberg repeated his plea for all states to do their bit to help boost the national economy. Western Australia is allowed to celebrate its good financial fortune but it must be prepared to open its borders and share it with the rest of the nation in a time of need.