For much of the 2000s Perth was awash with money and in party mode thanks to the mining boom.
For those lucky enough to be in the mining industry as well as the Western Australian government, which collected soaring resources royalties, there was more money than many knew what to do with.
It is not news that the boom and the party ended several years ago and some undisciplined tradies overcomitted on houses and toys and couldn’t pay their debts.
But what many cannot fathom is how the state government was just as undisciplined, leaving WA with record budget deficits and debt set to pass $40 billion in the aftermath of the greatest economic boom in its history.
A major inquiry into WA’s fiscal crisis released last week by former Treasury boss John Langoulant was scathing of the former government’s financial management.
Colin Barnett’s Liberal National government of 2008-17 is portrayed as arrogantly ignoring the advice of Treasury to urgently curb spending as if the mining boom and high iron ore prices would go on forever.
Among the standout culprits, the report found, was the multibillion dollar Royalties for Regions program in which far too much of the mining royalties – 25 per cent – was wasted, “shovelled” for the last decade to rural areas at the expense of the city for projects with no business cases.
One of the most damning criticisms was a $4.3 billion contract awarded to global company Serco to run Perth’s new Fiona Stanley Hospital in Perth without a business case, and which has been beset with problems since, but there were many examples.
Mr Barnett refused to meet with Mr Langoulant for his Special Inquiry into government programs and projects, telling The West Australian newspaper last week it was a “nasty political” act.
Mr Langoulant was appointed by the current Labor government, which instructed him on the projects to probe – of which most were poorly rated.
The terms of reference only covered the Liberal National government – not Labor before it – and gave Mr Langoulant had $1.5 million to spend, of which he says $1.1 million was used.
The Liberals and Nationals fiercely defended the legacy of Royalties for Regions in building infrastructure in rural WA.
They rejected Mr Langoulant’s description of it as “the main factor that caused difficulties for the government, it destabilised financial management, the system clogged up the cabinet process”.
But how do Mr Barnett or current Liberal leader Mike Nahan defend the fact that when the WA government’s revenue more than doubled to $28 billion during 2013 – before iron ore prices fell – debt ballooned in the same period by more than 400 per cent to over $20 billion?
Debt is currently at a record level above $30 billion and forecast to peak at $40 billion-plus in the next few years, while the the current record budget deficit is about $3 billion and WA has not had a triple-A credit rating since 2014.
WA’s per capita expenditure was more than 20 per cent higher than NSW and Victoria’s last year.
Mr Langoulant rejects Mr Barnett’s excuse for the debt as being due to WA having the nation’s lowest GST share, instead saying the problems go beyond that, adding Treasury had warned the ex-premier about GST but he kept the economy on “full throttle” anyway.
He also rejects the Liberals and Nationals argument that they had to award massive public servant pay rises during the boom to avoid a brain drain, driving the budget into deficit because the pay hikes could not be unwound.
“The problem was the government spent too much and took its eye off its risk management responsibilities … our royalties were what needed to be managed,” Mr Langoulant said of the Barnett government.
“I feel for the current government, they have been dealt an impossible hand … they have got a set of finances which are beyond belief.”
Dr Nahan said no-one, including Treasury, Labor or Mr Langoulant had predicted the iron ore price in 2013-14 and WA Nationals leader Mia Davies said “everyone can look back with the benefit of hindsight”.
One of Mr Langoulant’s key recommendations – of 107 – is to be more fiscally conservative in the good times and build strong, recurrent surpluses for when things inevitably come back as happens in the boom-bust cycle of mining-exposed economies.
The Barnett government did good things for WA, especially building infrastructure such as the Elizabeth Quay river development, new stadium and major roads, but it should have been done with recurrent surpluses so the debt level would have been sustainable, he said.
Premier Mark McGowan said future generations and governments had been saddled with enormous debt and deficits and his government broadly endorsed Mr Langoulant’s recommendations to ensure future governments avoid the same mistakes.
Veteran WA political commentator Peter Kennedy said the challenge for the Labor government was to follow those recommendations, as it had major capital works to complete such as the multibillion dollar Metronet rail project and $400 million-plus new museum.