WA Liberals vote for WAXIT

Via the ABC:

The iron ore price spike in recent months has delivered little for state coffers, with the Government set to reveal a $1.7 billion royalty revenue hit over the forward estimates when it hands down its first budget next week.

A range of factors, including lower exports and the high Australian dollar, have forced Treasury to again recalibrate what it expects to reap from royalties over the next three years to 2019/20.

…lower than expected export volumes and a stubbornly high Australian dollar over the past six months have both weighed down the amount Treasury banks at the end of the day.

“There are a range of other factors that mean whilst the iron ore price is higher at the moment than we expected, there are a range of offsets.

“Our consensus forecasts have us coming back to US$60 dollars (a tonne) by the end of the forward estimates, so you see it decline rapidly back to effectively the long-term average,” he said.

The red ore accounts for around a fifth of government revenue but what it reaps for the state largely relies on the gamble global speculators play, making it a rollercoaster ride the government simply can’t get off.

Forecasting the commodity’s fortunes became all the more difficult when the industry switched to spot market trading in 2010, moving away from the more stable benchmark system which locked in prices on long-term contracts.

The mining boom “fourth phase” in action: cutting volumes to support prices. It makes no economic sense for the low cost producer, but hey.

Longer term, the answer to budgeting for the volatile iron ore price is simple. Establish a rent tax on profits above a certain threshold and put the proceeds into a sovereign wealth fund. As the cycle turns, draw down on the fund where necessary.

This is what nearly all sensible commodity producing nations do, at least those that are run by rational people using evidence-based policy in the national interest.

We don’t because it doesn’t suit our corrupt oligarchs.

To wit:

The West Australian Liberals have voted in favour of a motion to investigate the state seceding from the federation.

The non-binding “WAxit” policy motion, put forward by the Brand division of the party, south of Perth, passed 89-73 at the Liberal state conference on Sunday.

It called for the establishment of a committee “to examine the option of WA becoming an independent state within the Commonwealth”.

The state opposition leader, Mike Nahan, earlier said talk of secession was a well-warranted “expression of underlying frustration” at the state’s treatment within the federation but he was against the idea.

Nahan said West Australians had good reason to be frustrated with the state’s low GST share, but seeking reform was preferable to severing ties with the rest of the nation.

The “WAxit” motion was one of more than 20 to be put to the state conference. They included a push to force Malcolm Turnbull to recommit to repealing section 18C of the Racial Discrimination Act at the next election.

Much easier to blame your fiscal mismanagement on the east.

 

Comments

  1. Tassie TomMEMBER

    “Longer term, the answer to budgeting for the volatile iron ore price is simple. Establish a rent tax on profits above a certain threshold and put the proceeds into a sovereign wealth fund.”

    That’s a great idea! So good that Ken Henry might have had exactly the same idea 10 years ago.

    (I’m not having a go at you H&H, I’m having a go at how stupid, incompetent, and blatantly corrupt Australia’s governance is).

    After all, who owns Australia’s (ever declining) mineral wealth? Is our mineral wealth betroven to a multinational company or a dynastic Australian offspring who have thoroughly earned it by knowing which connections to talk to and by sticking a few pegs in the ground? Or is it owned by all Australian citizens? If the latter, then a taxation arrangement effectively making every resources project a 60-40 joint venture between the miner and the public is more than reasonable.

  2. adelaide_economistMEMBER

    Cool. Less royalties mean WA will get more from the grants commission kitty just like they’ve been complaining about. No word on why royalties were bad when Grylls wanted to increase them but now a decline in them is a disaster. The insane lack of consistency and logic on this issue is farcical.