Over the weekend, The Australian did a good job of retracing Colin Barnett’s boom:
…An early warning sign came when the government, just months after being elected, decided to splash some of its cash by agreeing to a new pay deal for WA’s teachers that made them the highest paid in the nation.
Few begrudged the teachers a higher salary, but the generous agreement prompted other public servants to demand similar pay rises and made it much harder for the government to bring recurrent spending under control.
The Barnett government’s other big drain on spending also had its genesis in 2008. To secure power after the cliffhanger election, Barnett agreed to Nationals leader Brendon Grylls’s demand for a new scheme, Royalties for Regions, that would redirect 25 per cent of the value of WA’s mining royalties to projects in the bush.
…Barnett also tapped into the boom-time mood by spending big on projects — roads, hospitals, schools, public transport, a glitzy new sports stadium and a Perth riverfront development — that he said were needed in a modern city.
Treasurer Mike Nahan was asked how it all went wrong and replied:
“We have undertaken the largest renewal of assets in the state’s history…we’ve had the highest paid, best-staffed and best conditions in the public service by far of any state…The beneficiaries of the boom are people who use public services.”
Fair enough, building physical infrastucture makes good sense and is a legacy of the boom that will help the state recover over time. But booms should not be blown on recurrent spending, that only sets you up for a bust, as we’re also discovering at the Federal level. In WA, much of that will now be taken away as wages and asset prices deflate.
It’s really just the same old story. Sensible economic management takes away the punch bowl when it’s full, it doesn’t add to it. By not doing so, Mr Barnett turned a boom into an explosion.
For the rest of Australia, Mr Barnett’s mismanagement means that the “two speed” economy that dominated post-GFC was worse than it needed to be as the east coast hollowing out of tradables was exacerbated by higher than otherwise interest rates and dollar, as well as that we are now required to bail Mr Barnett out. In the longer run all Australians will pay the price because credit rating agencies do not distinguish between state and national debt.
And don’t forget, the WA Treasury’s debt forecasts remain ludicrously optimistic. The bailout has barely begun.
