More taxes and cuts after rating downgrade
Budget pain: Premier Colin Barnett. Picture: Danella Bevis/The West Australian

West Australians face higher taxes and deep cuts in services after the State's credit rating was downgraded and the Barnett Government criticised for its "weak policy response" to its growing debt problem.

In a stinging appraisal of the State Government and its management of the Budget, Moody's cut its WA rating to Aa1 and warned it could be cut further if there was no strength-ening in the "Government's resolve".

Standard & Poor's stripped WA of its coveted AAA credit rating after Troy Buswell's last Budget as treasurer last year.

Moody's made its decision to cut its AAA rating after carefully examining Mike Nahan's first Budget, its "fairly optimistic" iron ore price forecasts and the Government's commitment to winding back debt.

It cited persistent deficits, which appeared to be getting bigger, a growing reliance on volatile iron ore royalties and a lack of resolve to deal with debt as key reasons for the downgrade.

"The challenges related to narrowing the Budget gaps include greater volatility in the State's revenue base, reflecting its increasing reliance on royalty income, expenditure pressures related to the rapid expansion in the State's economy and population, and a weak policy response to the deteriorating financial and debt position," the credit rating agency said.

Iron ore prices, at $US90 a tonne, are $US32 lower than what the Budget forecast in May. For every dollar the iron ore price falls, almost $50 million is ripped from the Budget bottom line.

Moody's has major doubts over the Government's ability to keep a lid on spending, particularly on health.

It said the Government's fiscal action plan, put in place by Mr Buswell, would fail to deliver "significant improvements" to the Budget in the short term.

Though Premier Colin Barnett has complained about the lack of GST flowing to WA, Moody's said the overall system of Federal grants remained supportive. If the State economy weakened, more GST would return to WA.

Moody's said a further downgrade, which would feed into higher interest rates on State debt, was possible.

Dr Nahan said that while it was the Government's aim, he did not expect WA to regain its AAA credit rating without an improved GST distribution.

Shadow treasurer Ben Wyatt called on Mr Barnett to resign.

"He's no longer in politics for the right reasons," he said.

"He's intent on legacy building rather than proper management of the State's finances."

The West Australian

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