The west is digging in against Labor

West Australian Premier Colin Barnett claims the state is being penalised for its success. Picture: Colin Murty

PREMIER Colin Barnett explains why Western Australia is a state under siege.

WHILE Julia Gillard is busy with the rural independents, the Greens, and denouncing the Coalition, Labor faces a trio of intractable problems in the west that threaten its governing integrity, its economic standing and its electoral support.

In an exclusive interview with this paper in his Perth office, West Australian Premier Colin Barnett declares his state is "under siege" from the Labor government in Canberra in a conflict the west neither sought nor provoked.

Barnett says in the four months Gillard has been Prime Minister he has had "no meaningful discussions" with her about the depth of policy conflicts that plague Canberra-Perth relations.

"What you've seen in the last year or so is that Western Australia almost feels under siege," Barnett says. "And we have been reacting, we're not the aggressor. I'm not of the old school of blaming Canberra for everything. That's never been my way. But I don't think that much of the rest of Australia, including the federal bureaucracy, understands this state or what is happening here."

This is a deep policy conflict between Labor and the nation's main resources state and principal exporter. The risk is that it will stamp Gillard as an anti-development centrist. With Gillard Labor's primary vote in Western Australia at an untenable 31.2 per cent at the August election and Labor reduced to three out of 15 seats, the Perth perspective is that Labor's refusal to engage with the West Australian Liberal government is a serious blunder.

Barnett is resolute, unforgiving and philosophical. He has kind words for Kevin Rudd and Health Minister Nicola Roxon, and says while he has had talks with Gillard, including last week, they do not constitute "meaningful discussions".

Having considered these policy conflicts, Barnett has made far-reaching conclusions. He rejects totally Gillard's new mining tax negotiated with the "big three" miners and does not believe this deal can survive its financial and constitutional hurdles. He argues the Commonwealth Grants Commission is obsolete and should be abolished and that Canberra's formula for distribution of GST revenue among the states is untenable.

He will never surrender one-third of GST revenue to the federal government, as required by the new hospitals agreement, and says this trade-off cannot work for WA. Finally, he argues that public opinion in the west is behind him on each issue and that Gillard Labor has embraced positions that doom it to political grief.

Referring to the Rudd government's initial resource super-profits tax, Barnett says: "With 65 per cent of this revenue coming from Western Australia, it was seen as an attack on the mining industry and on our resource income base. People talk about these resources belonging to all Australians. Well, constitutionally, they don't. They belong to the people of each state.

"In my view, from the time the mining tax was mooted, this was about total control of the industry. The proposal plonked on the table very casually was that the commonwealth would take over the collection of all revenues and, by implication, start to administer the mining industry. That would be Western Australia giving away its future. I was stunned when the other premiers said it would be a good idea, and I walked over to Queensland Premier Anna Bligh and said, 'I think you should have another think about this, Anna.'

"I said Western Australia won't do this. We won't hand over collection of revenues or control of the industry. When I made the remark that I understood the theory of a resources rent tax, Kevin Rudd looked at me and said, 'But I thought you agreed', and I said: 'No, it's never been discussed and I would never agree.' "

Pressed on Gillard's compromise tax proposal, Barnett says: "I don't believe this deal with the big three miners will survive. It has got no support here. Rio and BHP may be the biggest companies operating here, but that's not the mining industry. Nobody in this state - and that includes the state government - has ever felt wedded to that agreement. It's their agreement, not ours.

"I've said from day one that Western Australia will always collect its royalties and always preserve the right to increase or decrease its royalties if it wants to. I have no plans to increase royalties. But Canberra has got a constitutional problem. The only people who can reach agreement on royalties are state governments. Julia Gillard cannot deliver on any commitment for state royalties not to increase."

Ramming the point home, Barnett says any Gillard refusal to rebate miners for a future increase in state royalties is "neither here nor there to me and would not affect our own decisions" on royalty increases.

Barnett says the administrative mess is such that "we even got a phone call from federal Treasury to state Treasury, saying: 'We don't know much about the mining industry and how resources are valued, can you send someone over to help us?' The answer was no."

On the principle of surrendering power over royalties, Barnett says: "Western Australia would never agree to such an idea. I don't think you will find a person in state parliament, Liberal, Labor or Green, who would agree to that. It will never happen."

However the issue on which Barnett is most anxious is the collapse in the west's share of GST revenue as arbitrated by the Commonwealth Grants Commission. He sees this as WA being penalised for its success. The public expected when they paid their GST, that their state, in turn, would receive back a dollar for a dollar. But this is no longer the case.

Barnett says: "Western Australia gets back 68c in the dollar when the bigger states of NSW, Victoria and Queensland each get back over 90c in the dollar. This situation has become simply unacceptable to me. It is unacceptable to all Western Australians. And the public understands this. Yet projections over the next three years are that this return will fall to 54c and keep heading south. That gets almost to the scale of a Boston Tea Party revolt: not in a physical or political sense, but people here have just had enough.

"I think that in part explains why they took vengeance on Labor at the last election. It wasn't only the mining tax. It was the sense Western Australia is getting taxed to death.

"As part of the nation we are willing to contribute more than our fair share to the greater good. I simply argue there should be a floor at 75c in the dollar. We are doing more than any state to grow the pool of GST revenues and income and company tax revenues that go to the commonwealth."

Barnett volunteers that Rudd "understood this". He felt Rudd "had a fair degree of sympathy" and some federal infrastructure proposals were designed partly to compensate the west.

"Wayne Swan, I think, understands but is probably less sympathetic than Kevin was," Barnett says. "Julia Gillard, I haven't had a detailed discussion with her on it. I don't think the federal Treasury has any sympathy towards us at all."

The Premier brands the Grants Commission as "a mysterious black box", with few grasping its analysis or methodology. "I think the commission has served this country well for decades but it is now obsolete," Barnett says. "The GST was a good reform by John Howard but in this state it has gone sour. At the moment the people of Western Australia have no confidence in the Grants Commission process.

"The federal government keeps inventing new infrastructure funds but they don't amount to a lot in Western Australia. We need the 75c floor. If this state is allowed to get on with its business, it can solve the budgetary problem of the commonwealth over the next decade."

It was the Grants Commission that fanned Barnett's hostility to the reformed hospitals agreement proposed by the Rudd government last April.

This week Gillard and Roxon announced the national government would proceed with the legislation under which it will contribute 60 per cent of hospital costs. Roxon called on Barnett to reconsider his refusal to sign. She said there was another $350 million in health funding the national government would then offer the west. From the start, Barnett refused to surrender the 30 per cent of state GST revenue to the commonwealth, a non-negotiable part of the hospital deal.

"That meant for Western Australia, in effect, taking half of what we've got left," he said. "It's just untenable. I told Kevin Rudd at the start we could see merit in pooling of commonwealth and state funding for part of the public hospital costs. That offer still sits on the table; but we won't relinquish our legal share of the GST."

Barnett is ready to pay the price. He says WA would forfeit $356m over four years or $90m a year, "which is enough to run our health system for five days". In short, the Gillard-Roxon offer "is not attractive".

Barnett fingers Canberra's motives. "It's not really about health, it's about the GST," he says.

"It's about gaining control of the GST, a growth revenue source."

This Canberra-Perth dispute is devoid of the fire of state rights campaigns from another age. Yet the policy tension runs wide and deep. The evidence is that the politics are working against Gillard.