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Archive for May, 2012

WA v SA – More than a mining boom sustains WA budget

Posted by cegan on May 17, 2012

So the recent WA budget came out and the revenue comparisons are startling. Western Australia has 43 per cent of total revenues coming from the commonwealth compared to South Australia’s 56 per cent. These figures will reduce for Western Australia over time and most likely increase for South Australia, creating some significant financial issues. 

Western Australia has a revenue base of 25.5 billion for budget 2012/13, while in 2011/12. South Australia had a budget revenue of around 17 billion. With federal grants coming in at around 9 billion, Western Australia would have the revenue base of South Australia without any commonwealth funding. 

But when you take into account a ten per cent GST redirecting 100 per cent of what is spent here into the coffers. You begin to see the risks to Australian federation if the rate continues to fall. The current 2.79 billion raises itself to around 5 billion. Add income tax revenue that the commonwealth currently gets and you are looking at a revenue base approaching 40 billion dollars a year. 

Now you say Western Australia couldn’t afford an army, diplomats etc. New Zealand’s revenue base in 2010/11 was 57 billion dollars , just 17 billion dollars more than an independent Western Australia and 2.5 million more people paying tax and to provide services too. 

Of course this is never going to happen, but it does show you that the Federal Government is understating the revenue based power that Western Australia has in its agenda to get a fairer go. 

It’s tax base from sources outside of Royalties and Federal Contributions is more than double that of South Australia and is the leading revenue source, compared to Federal Grants being the largest contributor to South Australian budgets. 

Businesses here have prospered with the mining boom, but the end result has not been to reduce taxes or the revenue base that has allowed this prosperity. Whereas we could have reduced taxes by 3-4 billion to keep our revenue streams similar to South Australia and further boosted the economy, we have instead decided to spend that money on an infrastructure program that dwarfs South Australias. Net debt peaking at 4.3 billion in South Australia to Western Australia’s current 25 billion dollars in net debt.

A staggering 7.6 billion dollar average a year for the foreseeable future spent on infrastructure in WA in the last financial year more than double that of South Australia. This government investment drives the local economy and stimulates it at the same time as a mining boom. Something that has not been interpreted by eastern states based economists when wondering why the national employment rate drops – Western Australia continues to go through a state government backed stimulus package.

But it could easily of done the conservative plans of South Australia, spent less on infrastructure, reduced state taxes, maintained some of the GST revenue. Australia would be all the poorer. 

I am all for horizontal fiscal equalization, but let’s put the facts out there, Western Australia had policy choices it could have made to keep more GST revenue by reducing stamp duty and other state taxes to very low levels. Instead they chose to be punished for spending money on infrastructure and go into levels of debt that South Australia are not going to approach anywhere close to similar levels. 

As the rest of the country look at us as a quarry, remember by choosing not to reduce its major revenue source (state taxes), has made the WA budget 13 per cent less reliant on federal funds for its revenue base than South Australia. 

So remember due to state policy decisions, WA is giving more GST dollars to the rest of the country than it otherwise would have if we had of elected a conservative politicians who used the revenue raised to cut state taxes, a situation currently ignored by most on the eastern seaboard. 

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