WA Votes amid a Tax and Spend Addiction

The Western Australian state election is looming around the corner with almost two weeks until the state government is reshuffled to give Western Australians a new representative body. With the campaign in full swing, both major parties have made promises that the public are sure to base their votes upon.

Last week, Labor leader Mark McGowan made one of these promises, stating that there will be no new or rise in state taxes if he gets into power on March 11.

With the election so close and a recent ReachTEL poll showing the Labor/Liberals are matching 50-50 in a dead-heat, it would also be nice to hear the same promise from Collin Barnett – an echo of Tony Abbott’s: “Tax cuts are in our DNA”.

However, one important issue that has evaded the attention of the media is the WA government’s spending addiction. It is surprising that no major candidate of either party has mentioned any serious plans to lower state spending and tackle the debt challenge is has created for itself.

General government expenses having reached over double the amount a decade ago and state debt has now reached $33.2 billion. Without a promise and detailed plan of how this problem is going to be solved, how can we treat Mark McGowan or Collin Barnett as serious candidates?

This election is also being closely watched by voters because of Western Australia’s recent economic decline in the past several years. The WA mining sector has suffered with the rest of the economy having taken a hit leading to a drop in Gross State Product growth (now 0.5 per cent). Businesses are struggling to survive in the current economic climate, unemployment levels have risen, and the experience of the average working Western Australia is proving tough.

A promise against tax hikes is therefore very relevant to the future of many Western Australians, since it would help boost the economy and keep more money in taxpayers’ pockets.

While a promise to stop tax rises is a step in the right direction, what would boost the economy out of its slump would be a reduction in taxes.

Taxes are giant barriers to economic growth – take the payroll tax as an example. It is essentially a tax on jobs. Businesses are taxed 5.5 per cent of the total wages they pay if those wages are equal to or more than $70,833 a month. It is not difficult to see what this incentivises – businesses become less inclined to hire more staff and give more working hours to their employees. The amount the WA government reaped from the payroll tax in the 2015/16 financial year was $3.5 billion. It is thus ludicrous to believe the payroll tax, and other taxes alike, benefit the state.

During the last two terms of government, Western Australia clearly had a spending addiction with the $3.8 billion of debt in 2007 having reached $33.2 billion this year – an 872 per cent increase. Recent projections show this debt growing to $41.1 billion by 2020.

Luckily, WA’s descent into further debt is not set in stone. The state would be able to escape its debt burden if it shifted into a more economically stronger position. This would involve accompanying a decrease in taxes with a decrease in spending measures. The logic of this comes from the notion that increasing the deficit is no different to an increase in taxes. Every dollar that is spent by the government is a dollar that must be paid by the taxpayer. If taxes are held at current levels by the ALP while spending continues, it is merely increasing and postponing the total tax amount that Western Australians will pay in the future.

 

 

The source of Western Australia’s spending addiction is evident when we look at the levels of state operating expenses over the past decade. State expenses are represented by the ongoing costs of government administration, which has increased rapidly over the last decade.

Compared with government’s expenditure in 2004/05 ($13 billion), the expenditure over the last year reached $29.9 – over double the amount a decade ago. Keep in mind that each expense made by the state government must be repaid by the taxpayer in the future. With government expenses in 2015/16, the amount that taxpayers will have to repay in the future will be $30,600 per household – with zero promises made yet by the Western Australian candidates that future expenses will be lower.

This also holds evidence against Colin Barnett’s repeated statement that WA’s debt is the result of an unfair GST distribution. The problem is clearly one explained through the government’s spending behaviour spending rather WA’s received share of the GST.

This also cannot be explained by WA’s population or inflation growth – this is simply a case of a government wanting to increase its administrative and bureaucratic size, along with growing spending projects. When government expenses have doubled within a decade, it is obvious that WA does not have a revenue problem – it has a spending problem.

 

 

Asset investment projects also make up a significant portion of Western Australia’s spending, which peaked in 2007/08, but remains at a high level today. General government investments rose 56 per cent to $2.5 billion in the last decade. Total public sector investment (which includes general government investment) with the addition of investments by public corporations, rose 24 per cent to $5.2 billion over the same period. However, total public sector investment expenditure peaked in 2012/13 reaching $7.4 billion.

Although asset investment has decreased since 2013, it is still excessive considering that the only in the past few years the Metropolitan Redevelopment Authority has managed to rack up $3.95 billion mostly with tourism and cultural projects.

The debt accumulated by the Barnett government is partly attributed to the asset investments made during his term.

Many of these projects were created on the whim that it would stimulate the economy and open up more jobs throughout the state.

In Perth where a lot of this spending was concentrated, the Barnett government spent billions with the goal of enlivening the city. This brought us several large projects that contributed to WA’s current debt such as Elizabeth Quay and the Perth City Link.

 

 

 

Of course, the development of Western Australia is desirable and should be a goal of state governments, however the government should shift this responsibility from the public to the private sector.

Having the private sector develop major projects, would allow the government to avoid further debt growth. Projects would be created with greater emphases on the desires of the consumer, rather than the governments’ own idealised vision of what the consumer wants or needs – as seen with Elizabeth Quay and the difficulty in attracting private interests.

While no rise in taxes is a good start, the level at which taxes have been allowed to grow up to this point still offers the ALP a huge leeway for future spending projects. McGowan recently criticised the Liberals for spending $2 billion on the Roe 8 project, and stated that with him in office this money would be reallocated to road and rail projects.

By doing this, McGowan would be doing the same thing that the Barnett government has done over its past two terms – spent. Instead of reallocating the expenditure of this $2 billion, perhaps the ALP should look toward using it to reduce state debt and decrease its annual borrowings?

Although keeping promises isn’t a common attribute of our politicians, it is relieving to hear at least one party make a public statement for the halting of taxes. If Colin Barnett does the same, we would be on our way to making a home-run. Yet having a state government that freezes the growth of taxes is not enough – a cut in taxes is what is really needed for the future of Western Australia.

Provided that the next government is smart enough to also reduce expenditure, there may be some hope for the future financial health of Western Australia.

Nathan Dyson is a Research Associate for the Australian Taxpayers' Alliance

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