WA: Abbott’s “federalism” at work

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Nick G.

Emperor Barnett has extended his cupped hands to receive an emergency payout from the Abbott government only to make it easier to have shackles placed on his wrists.

Abbott’s finance minister Mathias Corman said today (May 6 2015) that the federal government would pay WA $499 million for roadworks to offset predicted falls in GST revenue.

However, he said there were “strings attached…including further asset sales”.

Background

Prior to the mining boom, WA was one of the states that needed large amounts of federal money.  As explained in our new booklet “Federation, the Constitution, Taxes and our Future” (downloadable from this website), the federal government raises the lion’s share of government revenue in Australia and distributes all GST-derived money to the states and territories under an equity principle called Horizontal Fiscal Equalisation (HFE).

To ensure that the level of government services is roughly the same in richer and poorer states, or between urban and rural locations, a state’s own capacity to raise revenue is factored into the distribution

WA chose to impose a fairly significant state royalty on mining operations in that state so as to access earlier and more directly the revenue from that state’s mining boom.  Hence it received a smaller share of the GST cake.

When iron ore prices plummeted to less than half their previous value, state royalties also plummeted very quickly.  The GST, however, is calculated over a three year average, so the decline in mining royalties won’t allow an immediate redistribution in WA’s favour.

Barnett complained that WA was being treated unfairly, but his interstate colleagues refused to decrease their GST allocations, claiming WA had benefitted from the mining boom and should have anticipated a downturn by putting some of their royalty income aside for just such a rainy day.

Ratings agencies tenderise the WA steak

Like a piece of fat-enriched Wagyul beefsteak WA government-owned assets were set to be devoured by finance capital in search of new areas of investment.

The tenderising of the steak was conducted by the notorious credit ratings agencies whose power to increase a state’s borrowing costs make them a major influence for the advancement of neo-liberal austerity agendas.  The agencies have an incestuous relationship with giant corporations who pay for assessment of their own credit worthiness.

Standard and Poors (S&P) led the way in September 2013 by downgrading WA’s AAA credit rating to AA+ as the collapse of the mining boom took on a long-term character.  The downgrade was the first major warning to WA to press ahead with an austerity agenda being demanded by finance capital.

On August 25, 2014 Moody’s Investor Services followed S&P, reducing WA from its triple A rating to AA1.  Moody’s warned WA that unless it “slowed the pace of expenditure” (ie introduced austerity measures) there would be further downward pressure on the ratings.  Rather than warning off the ratings agencies, the WA Labor Party chose the path of electoral opportunism and warned that Western Australians would have to face “either higher taxes or fewer services” unless the WA government changed course.

In a further softening up of WA for privatisation and austerity, S&P indicated on April 14, 2015 that it would downgrade WA’s AA+ from “stable” to “negative watch”, indicating to international financial markets that the state was likely to deteriorate as a credit risk, and that lending institutions should make it more expensive for the state to borrow from them. The tenderising proceeded apace with blunt “advice” from S&P that the state must raise taxes, cut spending and introduce other “reform” measures.

Telling “sovereign” state what to do

Not only has WA faced a decline in mining royalties and increased borrowing costs, it has also shared in the Abbott government’s reduction in the funding previously provided to the states for hospitals and schools.

The WA treasurer Mike Nathan had demanded $660 million from the federal government to help it through the next two years.
Today’s announcement has diminished that amount by a quarter, but increased the pressure on WA to push ahead with a privatisation agenda.

In the wake of the NSW election, Mathias Cormann demanded that WA follow Mike Baird’s example and put the state’s electricity poles and wires up for sale.   Hockey has also demanded such measures deregulating trading hours and dismantling boards such as the potato marketing corporation.

Such demands are clearly resented by the WA premier as interference in his state’s internal affairs and sit oddly with repeated calls from Abbott and Co for states to be treated as sovereign entities left to their own devices while the federal government focuses on matters on national importance.

The reality is that there are different levels of contradiction being played out here.  There is the contradiction between the federal and state governments over revenue responsibility, but there are also contradictions between those sections of the ruling class that believe that state-provided infrastructure is cheaper and more efficient, and those sections desperate for the investment opportunities afforded through the privatisation of state assets.

The people’s interests just don’t get a look in.  

While those in the big end of town argue amongst themselves, working people are set to lose either way.

The Labor opposition cannot be relied upon because it confines itself to the same social system that has caused these problems, and the same parliamentary institutions that have proven incapable of identifying a solution that protects and defends the living standards and rights at work of the people.

The only answer is for the people to strengthen their union and community organisations in readiness for a major fight to protect jobs and government services.

The only answer is for further progress in developing a truly independent working class agenda around the people’s most immediate interests.

The only answer is for the demand for Australian independence and socialism to resonate through a large and organised fightback movement.

 

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