West Australia’s Barnett government has just handed down its budget. It is the ugliest baby I have ever seen.
All key financial measures have been blown apart in the state budget, with net debt (above $30 billion) cash deficits (above $5 billion) and debt to revenue ratios (above 80 per cent) hitting unprecedented levels.
The state government is paying for its past unwise decisions. This budget position should not have been a shock.
This condemnation by a conservative paper of a conservative government is not red-rag tabloid theatre – it is richly deserved.
The AFR again:
Treasurer Mike Nahan said he had never seen the economy in such bad shape. “Households are not spending. They are saving like mad,” he said.
There is a glimmer of hope. The Barnett government – under insistent advice from its Treasury – has committed to levelling up land tax, as The West Australian reports:
Commercial and residential property investors will be slugged with an extra $826 million over the next four years after State Treasurer Mike Nahan made land tax increases the centrepiece of the State Government’s revenue raising efforts in this year’s State Budget.
This year’s move follows a 10 per cent increase in land tax rates in last years budget.
The State Government expects to raise an extra $184 million next year by introducing a $300 flat tax for land with an unimproved value of between $300,000 and $420,000, and lifting land tax rates on most properties valued above those levels.
Currently investment property is taxed at a rate of 0.11 per cent of its value above $300,000, at 0.58 per cent above $1 million and at 1.51 per cent above $2.2 million.
Property with an unimproved value of less than $300,000 will remain free from land tax, but smaller retail investment property owners who own property worth just a dollar more than that amount will now be slugged a $300 flat fee.
Only the top rate of the current land tax scale, the 2.67 per cent levied on the value of land above $11 million, remains unchanged in the State Budget.
WA Treasury wanted an even lower initial threshold and a more level rate – this is just good economic policy – but settled for the $300 flat fee on threshold land to allow the Barnett government a shred of dignity.
WA faces a gaping revenue shortfall as weak property sales volumes hit Stamp Duty and Payroll Tax receipts from the mining investment boom vaporise and FIFO workers fly out.
Colin Barnett presided over glorious times but frittered the money away indulging favored interests with weak leaky taxes and on grand infrastructure for Perth.
David Llewellyn-Smith at macrobusiness (paywalled) exposes the fanciful WA business investment forecasts that underpin even this weak outlook. They cannot be met – the party is over for WA, leaving it with a giant hangover and empty pockets.
Tax reform onto quality bases like land tax and resource rentals in the good times would have turned WA into a fiscal fortress able to withstand any shock. Instead, it must now endure a major property downturn, emigration and falling wages. Empty state coffers sorely limit future options to ease the pain.
But no, Colin Barnett and his mates knew better. Idiots.