2015-16 Western Australian Budget

14 May 2015

Key Points:

Forecast deficit of $1.3 billion in 2014-15 with revenues hit by reduced royalties and low GST distribution
First deficit in 15 year
Net debt set to reach $36 billion by 2017-18
‘Lagged’ GST receipts to help deliver a return to surplus in 2017-18
New asset sales foreshadowed, including Fremantle Port.

Summary and Analysis

As predicted in the Government’s Mid-Year economic review, the seventh budget of the Barnett Government has confirmed that Western Australia is set to record its first budget deficit in 15 years. Treasurer Dr Mike Nahan described the budget as being prepared “in the most challenging economic and fiscal environment the State has faced in at least the last three decades”, and this is certainly reflected in the budget aggregates.

Treasurer Nahan has revealed the extent of the State’s declining fortunes with revenue written down by $10.2billion since the previous budget. This in turn has fuelled an increase in State debt, which is now expected to peak at an unprecedented $36billion. The recently announced $499 million injection of Federal funding for WA road projects has not been included in the budget figures, but would provide some offset.

Since the December 2014 Mid-Year review revenue forecasts have been hit by reductions in royalties, payroll tax, land tax and motor vehicle stamp duty. New revenue measures, including increases in land tax rates, only go a small way to mitigating the losses. The State will begin to see some improvement in GST payments as the lagged Commonwealth Grants Commission process kicks in, but deficits are unavoidable for the next few years. While much as been made of WA’s GST relatively falling to only 30 cents in the dollar, Treasury now estimates that this will recover to 67 cents by 2018-19 as the lagged payments flow.

The State’s revenue dilemma has been exacerbated by the Government’s ongoing capital works program, which is still worth around $6billion each year. Since the Mid-Year review the program has increased by a further $1.3 billion across the period 2014-15 to 2017-18.

The Government has announced an expanded asset sales program to tackle the debt problem, including the sale of Fremantle Port, which will include the previously announced Kwinana Bulk Terminal. No significant sales have been concluded since the Premier first flagged privatisations in response to a credit rating down grade in September 2013. The lack of action has contributed to ratings agencies criticising the Government for a ‘lack of political will’, and this positon is unlikely to change until firm action is seen.

Treasurer Nahan has managed to keep recurrent expenditure growth to just 4 per cent in 2014-15, though this is higher than the original budget target of 2.6 per cent. He will have to do even better to meet the forecast rate of 2.5 per cent in the year ahead, and then 2.1 per cent in the election year of 2016-17.

As reported in the media, a no-fault insurance scheme is set to be funded through a $99 levy on most motor vehicles. The accounting treatment of the fund means that this will have a positive benefit on the State’s finances, reducing net debt by $286 million in 2019.

In some rare good news for the resources sector, the Government appears to have scrapped planned royalty rate changes that were proposed by former Treasurer Christian Porter. This move will cost the Government $560 million in foregone revenue.

After pushing back a planned increase in the payroll tax exemption threshold to 2017 in the Mid-Year Review, the Government has now revered this decision, reinstating the original commencement date of 1 July 2016, which will benefit around 17,000 small businesses.

Similarly, a previous announcement that the metropolitan region improvement tax would be extended State-wide has been scaled back to only Bunbury and the Peel regions, resulting in a revenue reduction of around $96 million over four years.

Despite the deterioration of the finances, the Government has sought to shield households from the impact. The estimated impact of budget measures on Treasury’s ‘representative household’ shows a modest 3.8 per cent increase in fees and charges, equating to an extra $198 per year.

This includes:

Electricity charges up 4.5 per cent
Water, sewage and drainage up 4.5 per cent
CTP insurance up 4.1per cent (does not include no-fault insurance increase, as this takes effect from 1 July 2016).