Find me a true prophet!
The Barnett government in WA is advertising for someone to forecast what its tax and royalty revenues will be. Earlier official predictions, notably on iron ore royalty revenue, have proven wildly inaccurate.
The advertisement specifically calls for macro-economic and econometric skills and the ability to, ahem, “develop the econometric skills within the division”.
This appointment will fill a very large vacuum. Selling the WA 2015 Budget on the wireless May 15, Treasurer Mike Nahan defended himself angrily:
“I used to do this for a living, predict commodity prices and I’ve listened to a lot of experts saying you should have, you could have predicted this fall,” he said.
“I looked at every forecast when the budget came down last year and we were smack bang in the middle.
“Ask Atlas if they saw [the price drop coming]; ask BHP or FMG. They didn’t. It dropped 65 per cent. That is out largest source of income, and then oil prices got hit. I defy anyone to predict that.
Well, forecasters did and are predicting the iron ore price trapdoor opening under Barnett and Nahan’s feet. At macrobusiness, Houses and Holes has been tracking and warning of this commodity price revert to mean daily. See here too.
Mike Nahan again:
“We’ve seen the largest evaporation of our revenue – $3.9 billion this year. Once that evaporates what do you do? This is not theoretical for me, this is reality.
“We can either increase taxes, cut spending and we’ve already trimmed the growth in expenditure the lowest it’s been in decades in the public sector – 2.5 per cent going forward, we laid off 3750 people in a fast growing population. Or we could run a deficit.
“We chose some increases in charges, modest by any standards of other states. We have trimmed the expenditure in the government to the lowest level.
“The public sector is absorbing the shock and we will have a very large deficit next year, $2.7 billion, but in three years time because of the rise in GST we will be back into a surplus of $2.2 billion. This is a cyclical hit, not structural.”
Sorry Treasurer, iron ore is in structural oversupply and prices are free falling. Prior conditions will not recur in our lifetime.
It didn’t have to be like this. If the clown conservatives hadn’t leapt to defend the ‘victims’ of Ken Henry’s Resource Super Profits Tax – mostly foreign-owned mining companies – government would now have lots of lolly to keep the WA economy going. Plus, the RSPT is a powerful automatic stabiliser, retreating in step as mine profits decline. Royalties lack this outstanding feature.
Elsewhere in WA, oil and gas producers are enduring a parallel commodity price decline, but the Petroleum Resource Rents Tax, on identical principles, is shrinking too.
Barnett and Nahan have engineered failure upon WA and its citizens. History will condemn them for their abuse in elevating private interests ahead of the common good.