Julia Gillard was in Perth on the weekend, speaking at the State Conference of the Western Australian Labor Party.
Our increasingly beleaguered Prime Minister was in an emollient mood.
"Australians, together — I can’t imagine us apart," she told the assembled unionists and ALP members.
"I can’t imagine the Australian economy without the great firms and workers of the West," she continued, in the characteristically stilted prose Australians are becoming sadly familiar with. "I can’t imagine my own footy club without Brad Hardie’s Brownlow. I can’t imagine my own party without John Curtin’s courage, my own bookshelf without Tim Winton’s Cloudstreet, or our effort in Afghanistan without Ben Roberts-Smith."
If the Prime Minister was in soft-sell mode, explaining at length how much she values Western Australia, it might be because Labor is quickly becoming a toxic brand in the west.
Relations between Canberra and the west have been more than a little fractious of late, and the WA branch of the party is unpopular with voters — nearly as unpopular, it might be said, as the federal party. At last year’s federal election, the state that has produced Labor luminaries of the calibre of Bob Hawke and John Curtin returned only three Labor members in the lower house. Defence Minister Stephen Smith, one of the cabinet’s best performers, held the formerly seat of Perth with Green preferences.
Endorsing the state ALP’s underwhelming leader Eric Ripper, Gillard told Fairfax Radio that "It is tough days for Labor in WA, there’s no point glossing over that, but I think Eric is showing a great deal of fighting spirit." There is indeed no point in glossing over it: Eric Ripper is struggling. WA Premier Colin Barnett, in contrast, is currently favoured in the opinion polls, and is attacking the Gillard government in Canberra with an enthusiasm that recalls the hey-day of hardline western conservatives such as Richard Court.
Matters have not been helped by the mining tax debate, which has naturally been as its most intense in the west. The original version of the mining tax, known as the Resource Super Profits Tax, was dumped in the days after Gillard replaced Kevin Rudd as Prime Minister, and the current incarnation, known as the Minerals Resource Rent Tax, has yet to be introduced to federal parliament.
That hasn’t stopped Fortescue mining magnate Andrew Forrest from threatening to lead a High court challenge to the tax, apparently supported by the Western Australian government. Earlier his month, Barnett told the ABC’s Chris Uhlmann that "if there is a High Court challenge from the mining industry, the West Australian Government will most likely intervene in support of that."
"This mineral resource rent tax is the most clumsy, inept example of public policy I have seen in twenty years," he added, which is quite a statement from a Premier who has already raised mining royalties twice in twelve months.
A consistent theme of Barnett’s anti-Canberra rhetoric has been the state’s allocation of GST revenue. Western Australians are constantly told that they are being dudded by Canberra when it comes to the GST. The result, they are told, is that billions of rightfully Western Australian tax dollars are sent "over east" to Canberra, Sydney and Melbourne in the form of mining royalties and reductions in their "fair" share of the GST.
On the face of it, the numbers support the assertion. Compare the 2011 budget papers of Western Australia to a state like Victoria, which has the lowest level of mining in the country, and you can see the disparity. While Victoria receives nearly half its state budget revenue in the form of GST and other Commonwealth grants, for Western Australia the figure is only 38 per cent.
But there’s a reason for this. Commonwealth GST revenue is split up amongst the states in a complex process called "equalisation" by a special body called the Commonwealth Grants Commission. And the Grants Commission takes into account far more than just the population of each state when it allocates the GST. One of the key factors is the ability of each state and territory to raise its own revenue, through the relatively narrow set of taxes, levies and royalties available to them.
As the Grants Commission explains, in a special box in the issue in its 2011 Update Report, "Equalisation seeks to offset intrinsic differences between the States. In the case of mining royalties the intrinsic difference is their mineral endowment, measured by the per capita value of production."
And when it comes to mining royalties, the difference is enormous. Thanks to the mining boom, WA is swimming in revenue. This year the state will levy nearly $5 billion in mining royalties.
As the state’s 2011 budget papers explain, "the major driver of growth in the State’s revenue is mining royalties. Following exceptional growth of 79% in 2010-11, royalties are forecast to rise by a further $635 million or 15.3% in 2011-12 (to $4.8 billion), mainly on the back of rising iron ore prices."
Another reason Western Australia’s Treasury is raking in so many mining dollars is that the Western Australian government has been increasing the royalty rate. And yet, in contrast the explosion of public anger in the west over the RSPT, the reaction to Colin Barnett’s two royalty rises has been muted. This may be because Barnett’s government has shown a deft touch in negotiations. It may also be because opposition to Labor’s mining tax was politically motivated.
Other states have to make do with far less mining revenue. In contrast to Western Australia, Victoria earns the princely sum of $47 million from royalties — or less than 1 per cent of Western Australia’s take. To put it in perspective, Victoria earns five times more from traffic camera fines than it makes in mining royalties.
And because of this, the Commonwealth Grants Commission adjusts the amount of GST revenue it gives to WA — downwards.
Not surprisingly, the Western Australian government doesn’t like this. But it’s hard to argue with the Grants Commission’s logic. Economically speaking, this is precisely the point of a federal system like Australia’s.
If Western Australia was an independent nation, it wouldn’t have to send any money to Canberra. But it would face a different and much tougher set of challenges. The sovereign nation of WA would have to maintain its own defence force, its own currency and its own central bank. But, driven by booming commodity prices, a "Western Australian dollar" would likely be worth far more than the Aussie dollar is now. The result would be a super-charged version of the current excesses.
The pressures currently faced by all those parts of the WA economy not linked to mining right would be even tougher: an independent WA would almost certainly face a huge inflation challenge, for instance, necessitating very high interest rates. Yes, the state would benefit from cheap imports, but its exports (including its mining exports) would be more more expensive. Labour costs would probably be higher, and a small population would have to contend with the significant infrastructure needs and social tensions created by the difficulty of managing such a large boom — all on their own.
In contrast, by forcing the state of Western Australia to send money "over east", the mining boom benefits the whole of Australia, by helping to finance schools, roads and hospitals in New South Wales, Victoria and Tasmania. In return, Western Australia gets to belong to a much larger nation, with all the implicit advantages that brings. These include the protection of the Australian Defence Force, as well as the human capital available from national bodies like the CSIRO, the federal courts and public service, not to mention Australia’s millions of eastern workers and dozens of eastern universities.
Ultimately, Western Australia’s push for more GST revenue ignores a more fundamental truth. The minerals in the Pilbara do not just belong to Western Australia — they belong to the entire nation of Australia. Despite plenty of idle talk of secession, it’s a nation of which WA is still a part.
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