WA election: Labor's debt reduction relies on rising GST share and iron ore prices

WA Labor has promised to set aside 50 per cent of iron ore royalties to pay down state debt, but it has not ruled out increasing taxes.

The party released the first of its debt reduction strategies on Saturday, which were immediately attacked by the State Government.

WA's non-financial public sector (NFPS) debt is expected to be $36.6 billion by the end of the financial year.

Just before the Barnett Government came to power nine years ago, the NFPS debt was $4.96 billion.

Shadow treasurer Ben Wyatt said if elected Labor would introduce legislation to establish a debt reduction account.

Under the plan, half of the royalties earned from iron ore would go into a debt reduction account, but only after WA's GST share returned above 65 cents in the dollar and the price of iron ore reached $85 a tonne.

"The reason why we'll introduce legislation to do that is so in the event of a future Liberal government these figures are again above those minimums," Mr Wyatt said.

"I don't want to see the Liberals do what they've done over the last decade is just spend that money willy-nilly assuming it was here to stay and getting a future WA government in exactly the same position we're in now.

"In 2010–11 and 2011–12, royalties were above $4 billion each year some $8.5 billion in total. You allow for your 25 per cent Royalties for Regions which leaves you with just over $6 billion left, of that we propose to capture 50 per cent for the debt reduction account, that comes to around $3.2 billion that we would have captured and not just simply spent during the good times that we're now suffering from now.

"Mr Barnett assumed that brief spike in iron ore prices was here to stay and he spent accordingly, that's why we have record debt."

Treasurer Mike Nahan said the strategy would not raise a cent.

"The reality is our share of GST is 30 per cent and in the pre-election forecast released the other day it maxes out at 60 and more importantly if iron ore prices went to 85, by definition the share would be below 60," Dr Nahan said.

"The whole strategy of using windfall revenue to put into a bucket of money, the windfalls, even if they existed, they would be redistributed by the GST to interstate therefore it will never raise any money."

Mr Wyatt did not outline a clear plan for dealing with debt if GST and iron ore did not rise. He also did not rule out tax increases.

"There's no question it's going to be tough, which is why I've made it crystal clear I'm not going to make commitments like no tax increases, I'm not going to make commitments like no cuts, I'm not going to make commitments that are not believable," he said.

Labor also plans to hit government advertising, public service

Government advertising would also be cut by $20 million a year under Labor's strategy, and the number of senior executive service positions in the public sector would be reduced by 20 per cent.

Mr Wyatt said Labor would also stop the "excessive use of expensive and unnecessary" external consultants and contractors.

Dr Nahan defended his government's financial record and said they had been hit the largest drop in revenue in history.

"We are not panicking. We continue our capital build we continue to provide excellent government services but we are reducing the cost of government like never before and the revenue will come good with the GST, we will not get a windfall," he said.

"We're being honest we're going to the public with a plan — Labor has none — of selling assets we don't need, paying debt for within that business and using $3 billion to fund the capital needs of the future."

Commitment to deal with record debt welcomed

Acil Allen Consulting executive director John Nicolaou said debt reduction was a key area of debate, which should be prioritised.

He said both the government and the Opposition should be commended for attempting to deal with the problem.

"I think both policies have merit," he said.

"They are looking at things in a different way, but they are trying to position the state for the longer term in terms of reducing debt, reducing the size of the public sector.

"And [they are] also looking at ways of generating future growth through the proceeds of either Western Power or through iron ore royalties."

But Mr Nicolaou said while not impossible it was unlikely the price of iron ore would rise to the highs of the past.

And he said both proposals suffered from a lack of detail.

"When the Government announced the partial sale of Western Power there was a lot of uncertainty around how that would actually happen and what value it would bring," he said.

"Similarly, with Labor's policy today — I think there's a lot of detail to come in terms of the policy and the triggers or levers that will come with that.

"But taking it at its broadest level, an agenda where you look at iron ore royalties — and when they rise above a certain level — capping those returns and putting them away to use for long-term debt reduction, or long-term asset generation, that's a strong policy position."