No gain in the inquiry game

Tony Abbott's weeklong will-he or won't-he on an iron ore inquiry befuddled the industry, business figures and many of his most senior colleagues.

That the Prime Minister entertained the prospect of calling a parliamentary inquiry, advertising his intention on Alan Jones' radio show last week, tells us a few things.

First, and most obvious, it confirms Andrew Forrest's exceptional power of persuasion.

It is not surprising that Forrest gets the opportunity to bend the ear of the PM or Treasurer Joe Hockey or any other important person.

The Fortescue Metals Group boss is an expert curator of influence in many non-business areas - indigenous disadvantage, the arts, universities, even international slavery.

This has helped build him a network of cross-party political connections.

In fact, he's a better politician than many of those who get wage slips as MPs. Relevant here is that old political adage that you never hold an inquiry unless you know what the outcome will be.

The competition tsar Rod Sims has already expressed a view that there is no evidence of predatory pricing or collusive behaviour by BHP Billiton and Rio Tinto - Forrest's central charge - so it is unclear what the aim of a parliamentary inquiry would be.

Forrest may regard BHP and Rio dimly, but his real enemy is FMG's higher cost of production.

Brazilian iron ore giant Vale's looming expansion, bankrolled by the Chinese, poses a significant threat to FMG in the longer term.

The second conclusion to be drawn from Abbott's initial desire for parliamentary scrutiny is that the Government feared losing control if independent Senator Nick Xenophon's motion for an inquiry by the economics references committee got up.

This is understandable.

The committee, chaired by tearaway Labor senator Sam Dastyari, pulled the rug from beneath the Government on multinational tax avoidance last month.

It didn't want that done on iron ore, Australia's biggest export, especially if it only served to embarrass two of Australia's biggest taxpayers for no broader benefit.

Nor, it seems, did the Government believe the ALP wouldn't support Senator Xenophon's inquiry, even though Labor's Gary Gray told Hockey last Thursday that the Opposition would support an inquiry if it was called by the Government.

But there's a third reason why Abbott may have been of a mind to do something - anything - about the iron ore price.

And it's got nothing to do with Forrest.

The iron ore price has become a de facto measure of WA confidence.

Consumer confidence is a commodity on which every government's fortune ride.

If the punters are happy and optimistic, the incumbent is advantaged.

Westpac's measure of consumer sentiment, released this week, shows how starkly different West Australians are feeling to the rest of the country.

Whereas confidence rebounded 6.4 per cent nationally after Hockey's second Budget, in WA confidence fell 7.7 per cent. WA Chamber of Commerce and Industry chief economist John Nicolaou said the iron ore price and the State Budget were worrying West Australians most.

Nicolaou said early figures from a chamber survey showed confidence in WA had fallen to its lowest level since the depths of the global financial crisis in mid-2009, when unemployment jumped three percentage points as miners laid off thousands of workers.

For a Federal Government that needs WA to remain a coalition stronghold to counter expected losses in other States at next year's election, the sinking iron ore price is an embuggerance.

In the graphic above, University of WA election analyst William Bowe has plotted the Federal coalition's two-party preferred lead in WA against the iron ore price since the 2013 election.

Using WA data from polls by Newspoll, Ipsos, ReachTEL and Essential Media, you can see that the coalition's advantage over Labor has diminished considerably since September 2013 when iron ore averaged $US134 a tonne.

Bowe's analysis suggests the coalition has lost almost all of its two-party preferred advantage since the election, putting Hasluck (held by Liberal Ken Wyatt on a 4.9 per cent margin) at risk and Swan (Steve Irons, 6.5 per cent) within Labor's reach.

There are, of course, other reasons why the Government has lost favour in WA, not least of which is last year's Budget.

So you can't say there is a causal link between the iron ore price and the coalition's 2PP but they appear to be symptomatically linked, insofar as they affect or reflect confidence.

The Abbott Government cannot do anything to increase the iron ore price, as much as the Budget would benefit, but it is still politically vital for the Government to rebuild community confidence in WA, notwithstanding the gravitational pull of the longest-serving Liberal State Government and its profligate ways.

There have been several signs in recent weeks that Abbott is very much aware of this fact.

Sitting in the expenditure review committee in the pre-Budget period is said to have given the PM and ministers a better understanding of the WA condition, as Treasury serially wrote down billions of dollars in revenue caused by the fall in iron ore prices.

The wealth generated by WA through the high iron ore price and the construction phase of the mining boom had been taken for granted by the Government, as it was under the Rudd-Gillard government and the Howard government in its later years.

Now Colin Barnett's complaint about WA's GST share didn't look so crazy after all.

Economically, the Commonwealth needs WA to be strong, just as the Abbott Government's survival next year may depend on the State's confidence improving, or at least not being blamed for the economy's ills.

The $499 million one-off payment for WA infrastructure and the $20 million pledged for a new medical school at Curtin University were products of this new Federal concern.

WA's period of neglect appears to be at an end.

Call it the iron law of politics. If you are assumed to be already in the tent, you tend to get less attention.