Brian Burke: Government has no iron grip on debt levels
If a hungry horse asks for a fillet steak, don't give it one. Horses eat hay. And if a politician tells you he or she is motivated by anything except self-preservation, don't believe that.
Not a day goes by when politicians from all parties don't think and worry about the next election. It's the nature of the beast.
And it explains why, in the first year of any new government's term, politically popular policies like power subsidies disappear. It's as far as possible away from an election and governments bank on the voters having short memories.
But it's not all plain sailing.
Anyone with half a brain can see the serious contradiction in a Budget with a $2.5b surplus at the same time as the State's debt is increasing by $5.4b. Remember it wasn't so long ago that Colin Barnett was being accused of dangerous financial irresponsibility when State debt approached $30b.
Western Australia has been blessed by surging prices for its resources and by the 'political fix' both major parties accepted as necessary when our share of the GST plummeted. But instead of prudently preserving the string of surpluses that resulted, massive recurrent spending has been built into future budgets guaranteeing ever increasing debt and rising interest costs.
Of course, we may not need to stress if prices for resources continue to spiral, our GST share is maintained and revenue from traditional sources like payroll and property taxes continue undiminished.
But that's unlikely.
Federal Treasurer Jim Chalmers is already signalling 'tax reform' which is politician speak for increases that, if rumours are to be believed, may even include a higher rate of GST. Whatever the 'reform package' comprises, it's sure to dampen economic activity with a consequent downturn in State tax revenues.
But the big worry is the resources sector and, specifically, the price of iron ore.
In the coming year, the massive $20b Simandou Iron Ore Project in African Guinea will come on stream.
There are four blocks in the project and the Chinese own 49 per cent of the Winning Consortium Simandou (WCS) which is developing two of them with the Government of Guinea.
Then the rail and port infrastructure required for the development of the whole project to proceed will be owned in equal shares by Rio Tinto (a major Pilbara producer) and the Chinese with the Guineans having just 15 per cent.
The high grade ore from Simandou has fewer impurities than Pilbara ore.
Next door to Guinea, China is investing in processing facilities at Sierra Leone's Tonkolili iron ore mine and it has other investments in Cameroon, Congo-Brazzaville, Algeria, and Liberia.
At the moment, China buys almost all of its iron ore from Australia (70 per cent) and Brazil. When Simandou comes on stream expect the Chinese payback for the years during which they claim our producers have ripped them off with prices they had no option but to pay.
We've seen what happened to Australia's nickel industry.
Western Australia was hardest hit when Indonesian nickel resources were developed with Chinese money. Our industry closed down. Despite widely applauded trade and other agreements and despite the Prime Minister's assertion that our relationship with Indonesia is better than it has ever been, the only public response appears to be a truly disturbing television report by Liam Bartlett that explained the Indonesians were producing 'dirty' nickel used in electric vehicles bought by Australian motorists.
It's hard to point the finger at the Chinese. All they're doing is pursuing their national interest and if they can buy nickel from mines they fund in Indonesia, why shouldn't they do that?
The development of Simandou — that's the 'Pilbara Killer' — will replace lower grade ore, displace Pilbara ore and realign trade relationships.
Worse than that, there will be gaping holes in budgets committed to funding recurring debt built into expenditure obligations by short sighted State and Federal governments.
There was a time, not so long ago, when deficits were avoided like the plague (check Sir Charles Court's government) but that now is just a memory.
I know it won't be popular but it is well past the point when the Government should tell the Pilbara producers that they have obligations to Western Australia and not just to their shareholders.
When Pilbara producers bring their African mines into production, they should be required to reserve part of their sales of ore for the West Australian mines from which they have made billions in the past.
It may be too late but it's now more urgent than ever before to be thoroughly engaged with China about price and supply wrapped up in long term contracts that at least bring some certainty to our future. Even if it is at lower prices.
Brian Burke is a former Labor premier of WA.
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