From boom to bust - what happened to Western Australia?

Technically, Australia hasn't had a recession in over 26 years although we have had a number of slowdowns. In Western Australia, we saw mining boom one and mining boom two; the two booms were interrupted by the GFC in 2008. The financial data we have been presented is that the Western Australian economy isn't in recession although the average person wouldn't know it, this feels exactly like a recession.

We didn't really have a mining boom per se, we had a construction boom related to mining driving the economy of Western Australia. This distorted investment, employment and prices in Western Australia with a distinct mining focus and no plan B. So what happened? As the boom was related to mining construction, we know this has a finite life as construction is project based so. Mining production was already under way; this was mostly related to expansion of existing projects although some new projects were also initiated.

The Chinese demand waned, this has had a dramatic effect on commodity prices with the Western Australian Treasury Department generating revenue forward estimates on commodity prices that were inflated. They were conservative based on the actual prices at time of calculation, such has been the free fall in prices. The state government imposes a royalty on mineral extraction based on price and not volume, this is basically a tax. However, Australia now has a goods and services tax (GST) since the mid 1990s with federal collection distributing revenues to the states.

Due to the distribution model, Western Australia only receives approximately 30% of the tax it generates. As a result, state government services have been reduced, infrastructure projects cancelled, jobs lost and investment curtailed. The state now has a debt equal to the tax shortfall, the other states who have benefited from the GST revenue are unwilling to give up their windfall. Finally, there was the spending spree of the government and infrastructure projects initiated within an eight year reign, the issue with governments is they want to make short-term decisions so they gain the credit for infrastructure development.