WA relies too heavily on tax

For the government of a state that only a few years ago was in the midst of one of the biggest mining booms in history to be announcing an $5 billion budget deficit over the next three years, as Western Australia’s Labor Treasurer Ben Wyatt did yesterday, is embarrassing. It’s far from his fault, though: it is the consequence, rather, of fiscal mismanagement by the Barnett government and a GST distribution formula that has denied WA its fair share of revenue. But the McGowan government’s decision to increase payroll tax to help bring the budget back to surplus by 2021 will hamper the ability of businesses to push up jobs and investment at a time when the state needs to do all it can to revive industry as the resource sector shrinks. Cashed-up Rio Tinto, Fortescue and BHP, benefiting from an unexpected bounce in commodity prices, are only three of the 1300 firms that will be affected by the $435m tax increase.

A higher royalty on gold for larger miners, to apply when the price rises beyond $1200, might be more sensible. Nothing would have stopped Western Australia extracting a higher price for its mineral wealth during the boom, when iron ore, for example, soared above $US100 a tonne. Moody’s described Labor’s first budget, which sensibly refrained from imposing a levy on the major banks, as “credit negative” for the state’s Aa2 rating. While NSW’s net debt has fallen to close to zero, WA’s is rising towards $44bn, with less than a third the population.

Apart from plans to shed 3000 public servants through voluntary redundancy, Labor’s fiscal plan relies too much on tax increases. To be sure, WA has had a raw deal from the GST — the state’s share plummeted to 30 per cent of its per capita contribution last financial year. But as economist Saul Eslake has shown, it paid its public servants on average $86,300 in 2016, more than any other jurisdiction except the Northern Territory, and far more than Victoria, which paid $71,900. WA has also followed other states in slapping higher tax on foreign property investors, which is easy politics but far from a long-term solution to improving housing affordability.