After plenty of talk and billions of dollars, WA’s diversification has a long way to go

Post-pandemic Western Australia is more reliant on one industry than at any time in at least half a century — even after years of talk and billions of dollars to broaden the economy. About 43 per cent of the State’s economic activity was generated by resources in the year to June, analysis by The West Australian reveals. The huge dependence on the sector comes despite the State Government promising nearly $4 billion to diversify since 2020 — sparking questions about the strategy’s success. It will also reignite debate over WA’s exposure to global risks, as China backs development of huge iron ore provinces in Africa, and gas exports face a net zero challenge. Mining and petroleum generated $197 billion of income in WA through the 2024 financial year, according to data released by the Australian Bureau of Statistics this week. “The best approach is to accept that this is a good thing and make the most of it,” AMP chief economist Shane Oliver said. “It is very difficult to diversify. “No matter how quickly you try and diversify, mining will grow over time. “Diversification is a nice thing. It’s more like wishful thinking. Ultimately it’s very hard.” EY senior economist Paula Gadsby said the growth had served WA and Australia well. Royalties and tax payments had driven budget surpluses for both the State and Federal Governments, she said. WA’s economy has had a tremendous run through the most extraordinary times, with a strong jobs market the envy of the world amid the Global Financial Crisis and rebounding from COVID-19. Take home pay averages about 9 per cent higher than nationally. Across three decades, high-employing services industries including health and professions have grown significantly. But mining’s share of economic activity has rocketed, running above 40 per cent for each of the past five financial years. While the ABS only tracks back to 1990, University of Western Australia Economics Professor David Gilchrist confirmed that an industry had likely not been as dominant in this State for at least five decades. The clock would need to be turned back before the development of iron ore in the 1970’s, to a time when Professor Gilchrist said WA had been reliant on gold and primary industries. It’s widely pointed out that the majority of mining’s huge haul of cash is delivered to the investors that funded project construction. Yet there are hidden benefits. Strong exports improved buying power for wage earners and boosted living standards across the country, according to Reserve Bank research. AMP’s Mr Oliver said WA needed to use the wealth for long-term benefit, building infrastructure and reforming tax to become more competitive. He warned the State Government should be careful not to squander the windfalls on handouts to households, more bureaucracy, or “pet projects”. “That would be a disaster,” Mr Oliver said. Diversify this There has been no shortage of talk about — and taxpayer cash devoted to — ratcheting up new sectors. Analysis of the past four State Budgets shows almost $4bn badged as “diversification”, led by green energy plans and unlocking industrial zones. Federal politicians have not missed out on the party, spraying plenty of money through programs including the Modern Manufacturing Initiative. Broadening the mix has also been a big election issue. Labor won power out West in 2017 promising $425m for tourism, and touting local assembly of rail cars as a way to revive manufacturing. Seven years later, it could be argued WA is even more exposed to the booms and busts of digging up rocks. A State Government spokeswoman said ports were being improved, tourism funding boosted and red tape slashed. “These new and emerging industries take time to build, which is why we need consistent and sustained investment in this area,” she said. “We also have significant new projects in the pipeline that will further support those efforts, including the historic AUKUS agreement and Perdaman’s Pilbara urea project.” The town of Collie has been a special beneficiary, with $660m for a “just transition” as coal closes. Debate rages about whether the best approach to spark new ventures is direct financial support, or moving broadly to make the business climate more competitive. “The State’s on a really strong path,” Chamber of Commerce and Industry WA chief economist Aaron Morey said. He was encouraged by new minerals and processing in resources, plus space, defence and life sciences. But Mr Morey said bringing down energy prices should be a priority to improve competitiveness, pointing to US shale gas as the shining example. That would help new sectors such as data centres. “The United States is going to develop such a competitive advantage,” he said. “(Shale gas has) been a revolution in the last 10 to 15 years.” AMP’s Mr Oliver said the State should take the opportunity of booming revenue to get rid of stamp duty — a tax on buying homes. “This is an ideal time to do that,” he said. “Transition to more rational taxes . . . eliminate taxes that are less efficient.” New South Wales attempted to bin stamp duty in favour of land tax — with research showing every $100 raised through the charge costs the economy up to $180. The plan was later wound back. Slashing payroll tax would also bring in investors and new businesses, Mr Oliver said. “These sorts of reforms would make (WA) more attractive,” he said. UWA’s Professor Gilchrist was comfortable with direct loans to support industries but said Governments needed to be disciplined and ensure the business case stacks up. “We haven’t approached (diversification) in a coordinated manner,” he said. “We should be creating a wealth fund.” That would fund investment into education and new industries. But the ascendancy of resources has drawbacks. Exports push up the exchange rate, benefiting importers and adding to the pressure on businesses hoping to sell globally — what economists call Dutch Disease. It also drives demand for workers. That impacts non-profits and charities especially, Professor Gilchrist said. “It’s incredibly hard to get a workforce when you’re competing, or rather you’re not competing, with mining companies,” he said.