Aussie State Reeling From China Slowdown Set to Punish Turnbull

  • Western Australia goes to polls as net debt reaches record
  • Polls show Labor set to win enough seats to form government

Prime Minister Malcolm Turnbull’s Liberal party is poised to lose power in Australia’s western state, with polls showing voters deserting the government as the spoils from a resources boom evaporate.

The opposition Labor party topped Premier Colin Barnett’s Liberal-National coalition by eight percentage points in a Galaxy poll published on March 5. If that’s replicated in Saturday’s election, Labor leader Mark McGowan will seize control of the 59-member legislative assembly.

Colin Barnett

Photographer: Paul Kane/Getty Images

Barnett, 66, has been in power since 2008, and looks set to pay the price after the end of a Chinese-led stampede for Western Australia’s iron ore, natural gas and gold left the state with the nation’s highest jobless rate and falling economic growth. It lost its AAA credit rating, with net debt heading for a record amid spending on projects such as a A$2.6 billion ($2 billion) quay and football stadium in capital city Perth.

“Voters are calling into question the government’s fiscal management because it spent all the money from the mining boom and racked up debt, the economy has stalled and people are worried about their future,” said Martin Drum, a senior political analyst at the University of Notre Dame Australia near Perth. “There seems to be a real appetite for change but Western Australia has got a long way back regardless of who’s in control after Saturday.”

While state elections are fought predominantly on local issues, a loss wouldn’t look good for Turnbull, whose coalition is trailing in national opinion polls amid an inability to instigate economic reform. A growing wealth gap between cities and rural areas is fueling support for populist politicians who rail against immigration and free trade.

Read more about how Trump’s influence is spreading in Australia

Western Australia is home to the world’s largest iron ore mining hub, with cargoes mined by BHP Billiton Ltd. and Rio Tinto Group from the Pilbara region in the north-west feeding Asia’s mills. At the height of the boom, unskilled workers earned annual salaries in excess of A$200,000 and property prices surged, with apartment rents in some remote mining towns exceeding those of Manhattan penthouses.

While Barnett said in 2010 that “China is giving us the ride of our lives,” the state is now seeing the other side of the roller-coaster. Property prices in some parts of the Pilbara fell 75 percent in three years, the Sunday Times reported in October. State Treasurer Mike Nahan said last year the economy has had “the greatest hit since the Great Depression.”

Mining operations in the Pilbara region, Australia.

Photographer: Brendon Thorne/Bloomberg

While the state still accounted for 41 percent of Australia’s merchandise exports last year, the value of those goods has since fallen. The government forecast its net debt for the 12 months through June at a record A$33.8 billion and expects it to rise another 13 percent the following year.

In a bid to erase some debt and regain the AAA rating lost in August 2014, the government has proposed selling off 51 percent of energy retailer Western Power. McGowan, 49, has pledged to block the move if Labor wins.

Blame Game

His party has promised to create 50,000 new jobs and concentrate on youth employment to boost the economy, generating more revenue to reduce debt. McGowan has also vowed to improve public-transport infrastructure, as well as school and hospital facilities.

Barnett has blamed part of the state’s debt problem on the federal government. Western Australia receives the lowest share of revenue collected nationally from a 10 percent Goods and Services Tax.

“If Western Australia was treated the same as every other state we would be in a strong surplus of around a billion dollars and our debt problem would not be there,” Barnett said in an interview on Sky News on March 7.

Turnbull has said the state’s share is “far too low” at 30 cents in every dollar, and he wants to set a floor for how much each state receives. But he also said such a move was years away, earning him criticism during a brief visit to Western Australia in February -- his first in six months.

Adding to Barnett’s woes is the vow by Brendon Grylls, the leader of his junior coalition partner the Nationals, to raise the lease rental payment levied on ore from BHP and Rio Tinto to A$5 a metric ton from 25 Australian cents now. While Barnett opposes the increase, he may need to submit to Grylls’ demands to form a government.

Another factor in play is Pauline Hanson’s One Nation party, which is campaigning heavily in the state on banning Muslim immigration and rejecting free-trade deals. A Newspoll last month showed her party gaining 13 percent of the vote, putting her within reach of gaining the balance of power in the upper house.

“Certainly they are attracting a lot of attention,” Deidre Willmott, the chief executive of the Chamber of Commerce and Industry of Western Australia.

“Whoever wins government has simply got to get spending growth under control,” she said. “We have growing debt. It is a major concern to the business community.”

— With assistance by Kimberley Painter

    Before it's here, it's on the Bloomberg Terminal.