Western Australian Premier and Treasure, Mark McGowan is reporting WA is on track to produce a surplus of $5.7 billion for the previous financial year. This is McGowan’s second budget since assuming the Treasurer’s portfolio after winning the election last year.
China’s demand for raw material has contributed over $10 billion in iron ore royalties will flood into WA’s coffers. Currently, about a quarter of WA’s $37 billion budget is directly paid by China.
Throughout the deterioration in Australia’s relationship with China, at least one thing has remained constant.
Mark McGowan, the hugely popular West Australian Premier, has been unbending in his support for friendly ties with Beijing.
As he handed down his second budget since assuming the Treasurer’s portfolio in the wake of his crushing election victory last year, it was easy to see why.
Almost never before has a state government posted such a whopping surplus, which is on track to be $5.7 billion for the 12 months to June 30.
The only time that figure has been eclipsed was by WA itself last year, when the surplus hit $5.8 billion.
It’s a position that McGowan was quick to say would make any other treasurer in Australia – not least his federal counterpart Josh Frydenberg – green with envy.
Such are the riches at McGowan’s disposal, a $400 giveaway to every household in the state in the form of an electricity bill credit has barely made a dent in the bottom line.
Throw in a couple of billion dollars’ worth of debt retirement, pushing the overall amount owed to below $30 billion, and a picture of economic vitality takes seemingly clear shape.
But behind the veneer is a more concerning aspect.
WA, and to a significant extent Australia, has never been more reliant on China for its wealth, at the same time as relations between Canberra and Beijing plumb ever lower.
For all the rhetoric around the Australian exports hit by Chinese trade strikes, such as coal, beef, wine and barley, iron ore continues to be the biggest show in town.
More than $10 billion in iron ore royalties will flood into WA’s coffers this financial year thanks to insatiable Chinese demand for the steel-making ingredient.
To put that into context, WA’s iron ore royalty receipts amounted to just $868 million in 2006-07 at a time when China was only beginning to industrialise.
It’s a similar story for other commodities such as oil and gas as well as gold, prices for which have been propelled skywards on the back of rocketing Chinese demand.
Even WA’s substantial GST receipts owe much to China, which has juiced the Australian economy and, by extension, the wallets of consumers who go out and pay the tax.
China bankrolls a quarter of WA budget
Boiled down, about a quarter of WA’s $37 billion budget is directly paid by China.
And yet rarely, if ever, have ties between Australia and China been so fraught.
Every other week, there appears to be a new flashpoint in the tussle for power between Beijing on the one hand and Washington – with Canberra by its side – on the other.
Most recently, there have been dark mutterings about the implications of a security deal between China and the Solomon Islands in Australia’s Pacific backyard.
None of it is welcome for McGowan, who must know that WA’s financial strength could easily turn into its biggest weakness if the big-ticket items in the trade relationship were ever truly jeopardised.
He signalled as much on Thursday as he spoke to reporters in the traditional budget lock-up, saying he was “frightened” by the talk of war coming from some parts of the Australian Government and bureaucracy.
“I’ve always said we should try to have a reasonable and productive relationship with China,” McGowan said.
“We should ensure that any diplomatic issues – and there are issues – are dealt with behind closed doors. I’ve said that the whole way along.
“I find that sort of conversation frightening – frightening that the Commonwealth would do that.
“And I think it’s grossly irresponsible to use those sorts of words and I’m not afraid to say it.”
Under leader Anthony Albanese, Labor has indicated a preference for less shouty diplomacy, but just as importantly has not materially differed from the Government in most key areas.
McGowan has made a virtue out of his economic management, reasonably pointing to the restraint he showed in the early days of government from 2017.
But crowing about WA’s world-beating financial performance also masks a more fragile reality – that without China’s largesse, the west is hopelessly exposed to a single, capricious market.