‘Inflationary’ WA handouts could inflame GST debate
The Reserve Bank is unlikely to like the cashed-up Western Australian budget aid that “causes unnecessary inflation”, according to a senior economist.
And the largesse offered in Thursday’s budget – a $2.4 billion surplus – could also strengthen the GST battles.
WA Finance Minister Rita Saffioti has confirmed the state is in its eighth consecutive surplus, with big spending supported by a royalty increase and GST take-up.
There is a $44.3 billion, four-year infrastructure pipeline, including much-needed support to shore up the housing stock.
But what caught the eye, including drivers and families, were the cash handouts.
Every WA license holder (regardless of whether they drive a gas-fueled vehicle, electric vehicle or bicycle) will receive $100, while families will receive $250 for each high school student and $150 for each student in primary or kindergarten.
The cost of living cut was announced two days after high inflation prompted the central bank to raise interest rates due to high inflation.
Announcing the increase, RBA governor Michele Bullock called on governments, states and the feds to look for ways to restrict demand.
AMP chief economist Shane Oliver described the declarations as “unnecessarily inflationary” and “a classic example of why we cannot rely on politicians to keep inflation in check”.
“They completely disagree with RBA governor Bullock’s comments on Tuesday,” he said.
“They make it harder for inflation to pull back and will put further pressure on the RBA and therefore mortgage holders.”
The benefits also run counter to Prime Minister Roger Cook’s pre-budget promise to cut living costs, but that too is too much.
A $1 billion package funds a new gold card for carers, expanded free public transport, capping regional flight costs for local people and energy rebates.
Alan Duncan, director of BankWest Curtin Economic Centre, said it would be wrong to describe the budget as non-strategic.
“This was a budget that aimed to address bottlenecks in the system, to address housing shortages, to address skills shortages, to address infrastructure that was struggling to keep up with population growth,” he said.
“It was a really welcome measure of commitment to these issues.”
There is no doubt that Western Australia’s economy powers the country; The question is how much of this generosity he should keep and how much he should share with the less wealthy.
The total surpluses for the last eight years (more than $23 billion) are linked to the Scott Morrison government’s policy of increasing the GST rollout in 2018.
The move was labeled “the worst public policy decision of the 21st century” by economist Saul Eslake but was welcomed in Western Australia.
Prof Duncan said he saw the debate live but there was no compelling case for change.
“I wouldn’t take this budget as a signal that WA is swimming in it,” he said.
“The use of the additional income was very smart, which is exactly what you need to do – not get hung up on ongoing expenses and look at the longer term.”
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