Mark McGowan’s third budget as treasurer reinforced the state’s standing as the country’s strongest economy.
Mark McGowan’s third budget as treasurer reinforced the state’s standing as the country’s strongest economy.
Mr McGowan announced a healthy $4.2 billion surplus – coincidentally the same in dollar terms as the federal government’s surplus – with surpluses well over $2 billion expected during the next three years.
Western Australia’s economic growth is projected to hit 4.25 per cent in 2022-23 and remain above 2 per cent the year after.
The strength of the state’s finances buys the WA government many degrees of freedom to combine cost-of-living relief with measures to grow the state’s housing stock, and drive forward with industrial development, infrastructure, diversification, and decarbonisation initiatives.
The budget featured some welcome action to alleviate cost-of-living pressures, primarily through the $400 electricity credit, with extra support for people on Energy Assistance Payments.
The commitment to deliver 4,000 more social housing dwellings, extra stamp duty concessions, support for residential construction projects and the $48 million package to expand the construction sector workforce all reflect well on the government’s priorities.
However, the short-term challenge of bringing the 27,500 houses currently under construction to the market remains significant.
There was not so much immediate relief for the rising rent costs that many in Perth and regional WA have been facing.
Commonwealth Rent Assistance (CRA) has been lifted in the 2023-24 federal budget, but it’s worth noting that this translates to between $11 to $15 per week in extra CRA support, or little more than $2 per day at best.
This is a small fraction of the added burdens that many people in private rental accommodation have faced, with the median Perth rental up by 15 per cent in the past year alone.
And I believe the budget projections are vulnerable to assumptions for price inflation and wages growth.
The history of past budget forecasts shows that wage growth projections are typically overly optimistic; the last time annual wages growth in WA averaged more than 3 per cent was a decade ago.
There has been a rapid increase in wages for WA’s 150,000 public servants since the end of the wages cap in 2017.
The McGowan government honoured its 2021 re-election pledge for a wages policy review and reverted to annual public sector pay increases of 2.5 per cent with an option for either a $1,000 sign-on bonus or an extra 0.25 percentage points on top of the base pay award.
And wage increases to public servants were enhanced to 3 per cent for two years from 2022, along with a one-off $2,500 cost-of-living payment.
Private sector wages in WA have grown by 4.4 per cent over the past year – well ahead of the national average – according to recent data from the Australian Bureau of Statistics.
But the Reserve Bank of Australia expects wages growth to moderate over the next year, so don’t expect the pattern to continue.
And yet the WA budget projects a return to real wages growth of 0.5 per cent by as early as next year, predicated on CPI dropping from 5.75 per cent to 3.5 per cent over the next year.
This may be a bit of a hostage to fortune when there are no real strategies or levers at the disposal of the state government to target CPI reduction.
The projection seems to be driven more by a hope that the RBA will do its job in controlling inflation through monetary policy.
- Professor Alan Duncan is director of the Bankwest Curtin Economics Centre
