Australia would be better off without WA

WAxit is suddenly in the news again. This is the issue that won't go away. Western Australians voted to secede from Australia back in 1933, however, eventually weren't allowed to.

But a recent poll found but Utting Research more than one-in-four West Australians said they'd like to see WA become its own country - a plan unofficially dubbed "WAxit".

Some people think it's madness. But actually, as an economist, it makes real sense.

The two best arguments for a separate Western Australia are the exchange rate and the interest rate.

At the moment WA and the east coast share the same dollar and the same interest rate, but it wouldn't have to be like that. and it might be better for both parties if it was not.

Western Australia's economy is not closely linked to the economy of the rest of the country. Whether you look at unemployment, growth or house prices you see huge divergences.

What we've learned from the European Union is that currency unions are a bit of a problem. When you put a range of different economies on one currency, it helps the strong ones while hurting the weaker ones. Germany thrives on the Euro with an unemployment rate about 3% while Spain suffered with unemployment of 14%.

Both WA and the rest of Australia could economically benefit from WAxit.
Both WA and the rest of Australia could economically benefit from WAxit.

The whole point of having a currency with its own exchange rates is it helps speed up a weak economy and slow down one going too fast. What happened in the mining boom is the east coast got stuck with a very high exchange rate. In 2011 it the Australian dollar went over US$1.10. but that had a lot to do with the crazy amounts of iron ore heading out of this country. That exchange rate was too high for the east coast.

Later, when WA property prices went into free fall and the economy was suffering, the exchange rate was too high for the West.

As you can see in the next chart, the unemployment rate in WA fell to just 2.3 per cent back in 2008. That's extremely low! NSW had unemployment more than twice as high. And yet ten years later, unemployment was much higher in WA than in NSW.

The two economies are strong at different times, and that means neither one gets the right setting. That often works to the disadvantage of WA because it has smaller weight in the overall economy.

WA and NSW have very different economies but have to live by the same exchange rates. Picture: Supplied.
WA and NSW have very different economies but have to live by the same exchange rates. Picture: Supplied.

Similarly, if you were setting interest rates for WA in 2015 you'd have them lower to help reduce the rate of unemployment. You'd have a Reserve Bank of Westralia and it would set interest rates that helped in Kalgoorlie not Cronulla.

I've previously argued Tasmania should be on its own currency, tentatively named The Boonie. The same arguments apply for WA. But what would we call it?

Obviously there'd be boring people who wanted to name the WA currency the Swan, but they'd be overwhelmed by the loveable larrikins who rallied to make sure it was dubbed the Quokka. 100 cents in a quokka, and probably an exchange rate of two East Australian dollars per Westralian Quokka, given how iron ore is going.

Surely Quokka dollars will be WA’s first choice of currency name? Picture: Instagram Chris Hemsworth.
Surely Quokka dollars will be WA’s first choice of currency name? Picture: Instagram Chris Hemsworth.

With Westralian Quokkas in your pocket, taking a trip over the Nullarbor to Adelaide or Brisbane, things would seem cheap. A bit like Bali. But coming the other way would be a headache. Going to Broome, for a Melburnian, would be like going to Luxembourg (if it isn't already!) WA would have to deal with a smaller inflow of tourists.

GST is another reason for Western Australia to strike out independently. It gets back 4.6 per cent of the nation's GST despite having over 10 per cent of the population. The rest of the country would suffer as the money pool shrunk but for the WA Government it would be a big bonus.

When it secedes from the Commonwealth Western Australia becomes the least densely populated country in the world, with a population density of one person per square kilometre. (Without WA the rest of Australia would not even be in the top ten least densely populated countries any more.)

On Freedom Day, there would be a big party in Perth and all the citizens of Westralia would celebrate. Early the next morning, before the sun has come up and while the hangovers are still brewing, the first thing that would happen - obviously - is the enormous, wealthy and lightly populated nation would be invaded by foreign forces who desire to control its vast reserves of ore, diamonds, and gold.

With little to stand in their way it would be a pretty quick job. By sunset that same day, the new ruler would be sitting in a big chair looking out the window onto West Perth while the clean bright flags of the new nation were lowered.

Meanwhile the nation of East Australia would have a leisurely debate about whether to fight to liberate their former country-people.

Victorians would be the sticking point, still upset over the 2018 AFL Grand Final. But eventually the two nations would be reunited and a lesson would be learned. There's more to life than the economy.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.


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