WA's Regions to take a hit in State Budget

WA’s Royalties for Regions in the firing line:

The Royalties for Regions program in Western Australia, championed by the Nationals, is facing cuts as the Barnett government trims its cloth to suit constrained economic conditions.

West Australian Treasurer Troy Buswell will deliver a state budget on Thursday that is expected to include changes to Royalties for Regions as the Liberal government looks to cut spending, curb debt and protect the state’s AAA credit rating.

The Treasurer is likely to push out spending for some election commitments, made just four months ago, as the government grapples with spiralling debt due in part to record infrastructure spending, and falling revenue.

When Nationals leader Brendon Grylls demanded the establishment of Royalties for Regions in 2008 in exchange for a power-sharing deal with Liberal Premier Colin Barnett, it was to receive a quarter of the forecast yearly iron-ore royalty income.

The fund was for regional spending above and beyond traditional government expenditure. Royalties for Regions is now enshrined in legislation.

But Mr Grylls, who is Regional Development Minister, said on Wednesday: “You will see changes to the [Royalties for Regions] program in our budget that recognises that the debt levels are pushing to a level we are concerned about.”

Mr Barnett told ABC Radio that Thursday’s state budget would be a “responsible budget fitting the times” and hinted there could be further increases in charges, after utility charges, motor vehicle fees and public transport fares had already risen.

DETERMINED TO ‘RETAIN SURPLUSES’

In February, the government forecast a $390 million surplus in 2013-14.

“The bottom line is we are determined to retain surpluses,” Mr Barnett told the ABC. “There’s significant cuts to programs but there’s also some very good news within this budget.”

Mr Buswell warned if tough decisions were not made, the state could end up “in the same situation as Queensland with multibillion-dollar deficits and debt spiralling”.

Since its inception Royalties for Regions has paid for everything from a $250,000 talking-musical public toilet to a $1 billion promise to convert Karratha and Port Hedland into advanced regional cities. Last financial year $1.2 billion was allocated to Royalties for Regions, with a further $4.7 billion expected in the coming four years.

But the program is yet to spend its 25 per cent royalty allocation entirely because it has succumbed to an “efficiency dividend” since 2009, hiving off a portion of expenditure.

The government may look to use Royalty for Regions funds, or funding previously quarantined under the “efficiency dividend”, to finance agricultural election promises.

The Nationals promised $300 million over five years to improve infrastructure, and for research and development and marketing. The Liberal government committed more modest expenditure, including $20 million for a biosecurity fund and a similar R&D fund.

STRUCTURE UNLIKELY TO CHANGE

There is speculation the government, which no longer relies on the Nationals to hold power, could look to change the current funding model for the program, which is based on forecast royalty income. This process does not take in to account the impact of lost income to the state through the Commonwealth Grants Commission, which cuts the state’s share of goods and services tax based on a range of revenue generators, including mining and petroleum royalties.

In effect, Royalties for Regions gets a slice of gross royalty income rather than net.

“He [Mr Grylls] bargained a very, very good deal,” a senior political source said. “The political landscape is changing. I think it is not an impossibility that they change it [to net royalty].”

Mr Grylls said the government was not considering changing the structure. “Until my last dying political breath I will fight to maintain the policy [in its legislated form],” Mr Grylls said.

“What they [opponents] are saying is we should give up on the GST argument and do more regional development in the eastern states. I am not conceding to the Commonwealth so they can go off and spend it.”