Following yesterday’s downgrading of Western Australia’s credit rating by Standard and Poor’s, the state government has announced that it will embark on a program of asset sales in a bid to shore-up the state’s finances and restore its credit rating back to AAA. From the Western Australian:
Port assets are being eyed for sale by the West Australian government in a bid to restore the state’s AAA credit rating…
Power and water utilities are potentially on the block, as are port assets, Mr Buswell revealed on Thursday.
“There are clearly assets on our balance sheet that don’t need to be held by the taxpayer,” he told Fairfax Radio.
“We’re not going to sell ports in totality but there are plenty of assets that sit within WA ports that we could look to sell.”
He said asset sales would only solve part of the problem, namely too much spending and not enough income.
Mr Buswell said the key was major reform of the public sector, but acknowledged job culls would be met with fierce resistance exemplified by Thursday’s teacher rallies.
“If the public response to what I think is some minor changes to the education system is anything to go by, we’re going to have a heck of a time getting those public sector reforms through but they’re critically important.”
Clearly, the Western Australia Government finds itself in a Catch-22. Having spent too much during the golden years of the commodity price and mining investment booms, it now finds itself with a deteriorating budget position as revenue growth fails to match inflated levels of expenditure.
In response to the shortfall, the State Government is eyeing asset sales – even though such sales can often be detrimental to long-run finances to the extent that the proceeds received up-front are less than the present value of future cash flows.
Meanwhile, cutting public sector jobs is also a risky proposition for the Government, given the employment market is set to to deteriorate on the back falling mining investment. As Europe has shown, pursuing austerity in the face of such headwinds is only likely to worsen any economic downturn.
