The State Government's failure to provide meaningful tax relief to business in its eighth state budget highlighted a government that is clearly trying to future-proof its prospects at the next election, rather than safeguard the economy and reinforce business growth.
There are over 200,000 small, medium and large businesses in WA, which generate wealth and create the opportunities that drive our state. They have good reason to be disappointed in the Government's final budget ahead of the next state election.
The 2008-09 Budget has some worthwhile initiatives aimed at addressing housing affordability and infrastructure constraints, but has once again highlighted a government that is unwilling to reduce the taxation burden imposed on the business community, which is the driving force behind the state's economic success.
The budget also highlights that the Government clearly does not have a long term plan to address the worrying growth in general government spending. It is now estimated that general government expenses will rise by 9.2% in 2007-08 and a further 7.7% in 2008-09, meaning that the Government will once again fail to meet its own spending targets - a goal it has failed to achieve since it came to power in 2001.
Worryingly, the strongest growth in general government spending is not in the "essential" services of health, education and law and order, but other "non-essential" services - a strong indication of a government that has lost control over its spending. Spending on "non-essential" services in 2008-09 is now expected to be 61% higher than it was in 2002-03.
Control over general government expenditure is the cornerstone of good financial management, and the government's continuing failure to rein in spending is a burden on the state's finances and all West Australian taxpayers.
The inability of the State Government to rein in spending is highlighted in the forward estimates, with the budget surplus forecast to fall from $2.1 billion in 2007-08 down to just $203 million in 2010-11, as spending growth outstrips growth in revenues. It also highlights a budget position that is now highly sensitive to changes in revenues, particularly iron ore royalty revenues.
Courtesy of the continued strong growth in revenues - primarily taxation revenues and mining royalties - the Treasurer has been able to provide targeted stamp duty relief for residential property purchases. The 50% increase in stamp duty thresholds will ease the financial burden on prospective home owners, and also help address the housing affordability crisis in WA.
Regrettably, this adjustment in stamp duty scales will not apply to purchases of commercial property. It is a decision that will act to increase the complexity of the stamp duty system at a time when a newer and simpler Duties Act will replace the current Stamp Act. Furthermore, it will penalise businesses looking to expand and grow their business.
CCI supports the national payroll tax harmonisation process that is currently underway. As a result the Government has announced that businesses under common ownership will be able to be "de-grouped" for payroll tax purposes - providing genuine savings for an estimated 2,800 businesses currently hit by this provision. This was a key administrative recommendation that CCI made to the WA Government as part of the State Tax Review process in 2005.
However, this announcement will only benefit just over 1% of the state's 207,750 businesses. Meanwhile, genuine small businesses continue to be subject to a rising payroll tax bill as a result of strong wages growth in the state. The Treasurer's failure to lower taxes means a WA small business can only employ 12 workers on average wages before being liable for payroll tax.
The budget does contain some worthwhile new infrastructure commitments in relation to electricity and ports, both of which are important to building the capacity of the economy. In addition, the creation of an additional 4,400 apprentices and trainee positions is welcome, and will help address labour shortages.
While it's hoped this budget will prove effective in addressing some key pressure points, there remains an urgent need for a longer term strategic plan to be developed - one which places a priority on efficient and streamlined government service delivery. Only then will Western Australia lose its ranking as the highest taxing state in Australia.
By John Nicolaou
Chief Economist,
CCI Economics and Industry Policy