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It's boom time for everyone

Think you're missing out in the two-speed economy while the privileged few prosper? Think again.

Think you're missing out in the two-speed economy while the privileged few prosper? Think again.

FORGIVE my absence at such an anxious time but I've been away on holiday in Western Australia. The wildflowers were unbelievable. And so was the affluence in Perth, where the mining companies' skyscrapers are so tall they can be seen from Rottnest Island, 30 kilometres away.

How'd you like to be living in Perth, in the winner's circle where everything is on the up, not doing it tough in Sydney or Melbourne, on the wrong side of the two-speed economy?

Actually, things in Perth aren't as wonderful as it suits envious easterners to imagine. Know what they complain about in the west? The two-speed economy. Most of them think they're missing out. Some people may be raking it in, but not me. I'm not on some fabulous salary, just paying the exorbitant house prices the well-to-do have brought about.

Now where have I heard that before? What is it about Australians at present on both sides of the continent that makes them so convinced they're missing out and battling to get by?

According to polling by Labor, 68 per cent of respondents believe average Australians aren't benefiting from the mining boom. Is that how you feel? If so, you haven't thought about it. As someone said, there are more things in heaven and earth than are dreamt of in your philosophy.

After such a long plane trip, I was half-expecting WA to be like another country. And it's true they have things we don't: magnificent tall trees jarrah, karri and marri and strange animals such as quokkas. But step into the bush and it's very much Australia: gum trees everywhere, kangaroos and kookaburras.

It's the same story economically. They may have huge reserves of natural gas and iron ore that we don't, but their economy is really just a corner of the greater Australian economy. As the locals are the first to tell you, a lot of the money they make soon finds its way into the pockets of people Over East.

For a start, there are no customs barriers between the states, so there's a lot of trade between them. Step into a WA supermarket and you see they are selling just the same stuff as ours do. Which means most of what they are selling was manufactured on the east coast.

Their big mining companies have been making huge profits for the best part of a decade. Nothing to do with you? Every east-coaster with superannuation has a fair bit of their savings invested in the shares of those big companies. So you've been getting your cut.

Your super's been looking a bit sick in recent years? That's mainly because of problems in the rest of the world. Whatever you've got, it would be looking a lot sicker without the resources boom.

Those mining companies are subject to the federal government's 30 per cent tax on company profits. And the feds' company tax collections have been massive since the resources boom started in the early noughties.

Do you realise that under Howard and Rudd we had cuts in income tax eight years in a row? Where do you think the money came from to finance those cuts?

In the economy, everything's connected to everything else. So if you're conscious of only the direct connections, you're missing a lot of the story. And no connection is more indirect or mysterious than the way the governments of NSW and Victoria have been benefiting from the good fortune of the WA and Queensland governments.

This arises from our longstanding commitment to the principle of "horizontal fiscal equalisation", which holds that all Australians, no matter where they live, are entitled to the same quality of government services.

That ain't easy, particularly because most government services education, hospitals, law and order, roads are delivered by the states. The cost per person of delivering services varies with how big and decentralised the states are. But another factor is the states' varying capacities to raise revenue. These days, states gaining royalty payments from their big mining industries have considerable "taxable capacity".

To bring horizontal fiscal equalisation about, the Commonwealth Grants Commission does many intricate calculations that determine how the $48-billion-a-year proceeds from the feds' goods and services tax are divided between the states. The commission works out the average amount of GST paid per person throughout Australia, then decides whether each state requires more or less than that, per person, to be able to deliver services of equal standard.

This equalisation process was introduced in the early 1930s to mollify the restive West Australians. Until just a few years ago, it meant Victoria and NSW received much less than the national average, while South Australia and Tasmania received a lot more than average and Queensland and WA took a bit more.

In 2004-05, NSW got just 83 per cent of the national average GST paid per person, while Victoria received 84 per cent. WA's share was 104 per cent of the national average and Queensland took 107 per cent, with SA getting 123 per cent and Tasmania 171 per cent.

But the huge increase in the resource states' taxable capacity thanks to booming mining royalties has changed all that. This financial year, NSW's cut has risen to 96 per cent and Victoria's to 90 per cent, whereas Queensland's cut has fallen to 93 per cent and WA's to get this 72 per cent.

It works out that, in effect, Queensland's benefit from its mining royalties this year will be reduced by $1.2 billion and WA's by $2.5 billion. Of their combined loss of $3.7 billion, NSW gains $1.3 billion and Victoria $1.8 billion.

Still think you're getting nothing from the boom?


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