There is a significant problem with the State Budget announced by Treasurer Rita Saffioti last Thursday and it will impact on inflation, the cost of living and the cost of building or purchasing a home.
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This problem is called the Asset Investment Program.
Between 2008 and 2021, governments of both sides budgeted around $5 billion to $7bn building assets for our State.
However with the current mining boom, the biggest of any State in our history, the current government is trying to spend as much as possible building stuff, the biggest example being its METRONET plan.
The 2024-25 budget lifts its asset investment by another $1.5b to a staggering $12.1b.
However, this flies in the face of good economic management.
John Maynard Keynes is credited with developing the economic theory of increased government expenditure to stimulate the general economy during a downturn - a theory now named after him.
He considered this would have been a better response to the Great Depression of the 1930s than the then small government policy, and his theory is aimed at using government expenditure as a stabiliser of wider economic activity.
As a part of his theory however, Mr Keynes argued that when the wider economy was booming, the government should step back and reduce its investment.
The last four State budgets however have been an economically perverse reversal of Keynsian economics, and the latest 2024-25 one is the worst of the lot.
This budget highlights the government increasing its Asset Investment Plan by billions in the middle of the biggest boom in our history, and at a time of massive demand and a shortage of labour and materials that is already driving up costs.
This is happening at a time when the resources sector is also growing significantly.
In 2021 the mining sector told the government that it would need 40,000 new workers to meet its expansion needs that included tens of billions of dollars of construction.
That mining expansion was in direct competition from 2020 with both State and Federal government COVID stimulus in residential construction that were worth up to $70,000, which caused another unmanaged boom that drove many construction companies out of business.
So, in the current economic environment the mining sector is trying to spend $10b plus a year on construction, and the State government is trying to spend $12b.
Both of them are competing for workers and materials with all those Western Australian's who are simply trying to get a house built.
The net result of all this activity is a blowout in construction times and costs across the board.
Which is why housing costs are up tens of thousands of dollars, and construction times are still closer to two years than the eight to 10 months it once was before both the pandemic and the boom.
It is also why government projects are blowing out.
METRONET started as a $3b project and it is now more than $12b, almost all being spent during the current boom.
Although some of the scope has changed, much of the blowout is simply rising costs of labour and materials.
The government itself has blamed these rises in costs for much of the METRONET budget increases and has gone cap in hand to the Commonwealth to help fund the blowout.
The outcome of the government's financial management for our State has been yet another boom-and-bust cycle in construction brought on in part by a government that should be committed to flattening the cycle instead of exacerbating it.
By trying to spend billions more to build infrastructure, and $2.8b more in public service wages since they scrapped their uniform wage policy, the State government is fanning the flame of inflation.
This will contribute to a long delay in interest rates coming down - in fact they may yet go up, which will damage the average home owner far more than the government itself.
The government's massive asset investment program will drive up costs and blow out times for home builders, the resources sector, and perversely, the government's own investment program.
This is partly why the budget predicted net State debt to rise from $28b to $41b or 46 per cent over the next four years, although with another low budget prediction for iron ore prices, these debt blowouts may not be as big as projected.
Proper management of government asset investment would help stabilise the construction industry.
The next bust cycle might be just around the corner, and a proper plan based on actual economic theory is needed.
