ANALYSIS: The state budget has been designed so Mark McGowan can announce unexpectedly good outcomes in future but also sets the scene for a bitter GST battle with other states.
ANALYSIS: The state budget has been designed so Mark McGowan can announce unexpectedly good outcomes in future but also sets the scene for a bitter GST battle with other states.
The premier said today the budget was based on “very conservative forecasts on revenue”.
Of all the assumptions in the budget, the most critical is the iron ore price, because that has such a large bearing on royalties income.
While iron ore is currently trading around $US105 per tonne, the budget assumes the price will fall to an average of $US74.10 per tonne in FY24 before reverting to the long-term average of $US66/t from November this year.
As a result, iron ore royalty income is forecast to plunge from $9.3 billion in FY23 to just $5.9 billion in FY24 and even less in the ‘outyears’.
Mr McGowan said he did not want to make the same mistake as the former coalition government, which assumed continued high commodity prices and its budget suffered when commodity prices fell.
“We are being cautious,” he said.
The sensitivity analysis in the budget papers shows how much upside the government is sitting on.
For every $US1 per tonne increase in the iron ore price, revenue will increase by $89.8 million.
The conservative assumptions in the budget translate to minimal revenue growth in FY24 (up 0.3 per cent) followed by a 6.1 per cent fall in FY25 and very small growth beyond then.
Despite this, WA enjoys a net operating surplus every year, of $3.3 billion in FY24 and about $2.5 billion in each of the ‘outyears’.
Other states struggling with large budget deficits will latch onto that number as they continue to argue WA’s share of GST grants is too high.
WA is projected to get $6.5 billion in GST grants in FY24, up slightly due to a larger national GST pool.
If not for the 2018 GST deal, which guaranteed a minimum 70 per cent ‘relativity’, WA’s share of GST grants would have fallen to just $0.9 billion.
To help WA prosecute its case in the Commonwealth’s upcoming GST review, the Department of Treasury has been given an extra $1.6 million.
That will allow it to hire extra staff, including a project director, matching initiatives already taken by other states.
Of course, the net operating balance is just one measure of the budget’s ‘bottom line’.
A more comprehensive measure is the ‘cash’ balance, which encompasses the entire public sector (including government trading enterprises like Synergy and the Water Corp) and the asset investment program (i.e. capital works).
This goes from a $1.4 billion surplus in FY23 to deficits in every ‘outyear’, peaking at $2.9 billion in FY25.
As a result, WA’s net public sector debt is projected to increase over the forward estimates, from an expected $27.8 billion at June 2023 to $US35.9 billion as at June 2027.
Treasury says its budget always forecasts an increase in debt but it does not transpire because revenue has consistently come in higher than its conservative forecasts.
