Abbott backs WA bailout as own budget fails

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The WA bailout has a new supporter in Prime Minister Tony Abbott, from The Australian:

The Prime Minister faces growing pressure from WA MPs who are warning that a failure to act on the proposed GST cut to the state would prove electorally disastrous for the Coalition.

…But any special deal for WA will provoke a backlash from other states if it disadvantages their own coffers. Tasmanian Treasurer Peter Gutwein yesterday warned his federal ­Coalition colleagues against caving in to WA’s demand to lift its GST share.

Sources have told The Australian one version of the plan being considered by Mr Abbott would see the $481m benefit to WA absorbed by the other states on a per capita basis.

The cost to other states is NSW $172m, VIC $135m, QLD $109m, SA $38m, Tas $12m, NT $6m and the ACT $9m. Small beer, really.

I remain sympathetic to the denizens of WA who do carry the nation on their backs in terms of national exports. But, at the same time this habit that Australian authorities have of changing the rules the moment things get tough, bailing out grotesque incompetence in the process, just has to stop. Note the framing of the issue above. It’s not national or even state interests at stake here, it’s political interests.

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WA elected Colin Barnett. Colin Barnett knew about the GST cliff ahead. Colin Barnett knew he was running a state budget with a history of boom and bust cycles. Thus Colin Barnett has proven to be a spectacularly inept commodity state budget manager and one implicitly reliant upon moral hazard. Why should everyone else bail him out so that WA is stuck with a dill at the tiller?

Meanwhile, a serene PM Abbott is moving to fix the Federal Budget as well, from the AFR:

Prime Minister Tony Abbott will seek to calm fears of a worsening budget situation on Wednesday by promising declining deficits and to limit the size of the centrepiece childcare package until savings can be found to expand it.

…The budget is being framed in the face of a plunging iron ore spot price which is decimating state and federal budget revenues, and threatening the profitability of some of the country’s biggest companies, with credit rating house warnings being issued en masse.

…Kyran Curry, a sovereign analyst with S&P, said Australia’s AAA sovereign credit rating was not at risk and the outlook was stable, but West Australia was less insulated to the iron ore price collapse.

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So the Budget surplus, the Budget crisis, structural Budget repair, even Budget stability has now become a Zeno’s Paradox that the deficit will fall every year. By how much? $1?

This is not good Budget or economic management. It is simply using up what few fiscal bullets Australia has left before they will be needed during the next global shock when the great super cycle unwind sucks in houses and banks.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.