The McGowan government is using yet another iron ore-fuelled surplus to throw the kitchen sink at cost-of-living pressures in Western Australia.
The 2023-24 budget surplus prediction of $3.3 billion is the government’s sixth in a row.
WA Premier Mark McGowan at the 2023-24 budget lockup.Credit: Hamish Hastie
However, once again, the government’s conservative iron ore pricing has meant the previous year’s surplus at $4.2 billion has far exceeded expectations – lavishing the state coffers with $2.4 billion more than the $1.8 billion projected in the December mid-year review.
The mountains of cash cement WA’s status as the nation’s most fiscally blessed state.
Despite these gains, an overheated construction market has forced a huge amount of funding to be diverted to the state’s infrastructure pipeline to cover cost blowouts on major infrastructure projects – the biggest of which being $1.2 billion for WA Labor’s Metronet program.
Cost of living front and centre
The headline policy from the budget was the continued electricity bill credit to win the hearts and minds of ordinary West Australians, whose household budgets are being stretched by inflation and rising interest rates.
The $715 million package will see a $400 credit dispersed in two stages to every household in the state, while 350,000 households already on energy assistance packages will receive $826 inclusive of the federal government’s power bill credit.
It is the third year in a row the McGowan government has offered this credit.
Asked why the credit was so broad to the point where billionaires would also receive it, Premier Mark McGowan said it would also capture ordinary West Australians who deserved help.
“That’s just ordinary working people who might not be eligible for a government benefit, who are slightly above the thresholds, who finally get something and some assistance from this government, and I’m very proud of that,” he said.
McGowan said this year’s budget reinforced the values of a WA Labor government.
“Wherever you are in Western Australia, whatever your occupation, this budget has something in it for you,” he said.
McGowan again proudly compared his government’s handling of the budget to his eastern states’ counterparts but denied the iron ore price was the sole reason for the state’s fortunes.
“Obviously iron ore prices and other minerals being high is helpful,” he said.
“It helps the Commonwealth too and also helps the other states, they share in it. It’s a very helpful thing for all of them.”
Iron ore to the rescue again
Iron ore royalties came in at $9.285 billion in the 2022-23 financial year – $3.8 billion higher than anticipated in last year’s budget and up $770 million since December thanks to conservative iron ore price predictions.
Lithium royalties continue to emerge as a great money-spinner for the WA government.
About $910 million was poured into the budget this year from the lithium sector, more than double what was expected in last year’s state budget.
GST receipts worth $6.4 billion and an additional $1 billion in Commonwealth funding for transport projects also helped boost the budget’s bottom line over the forward estimates.
McGowan said he did not expect the GST distribution debate to flare up after yet another multi-billion dollar budget surplus given the assurances he has been given by Prime Minister Anthony Albanese and Treasurer Jim Chalmers.
Despite these supercharged revenue streams, the McGowan government continues to shave down debt at a glacial pace.
The government has paid down $1.3 billion worth of debt, bringing it down to $27.9 billion.
This level of debt puts WA firmly in the middle of all the states and territories. However, it is expected to exceed $35 billion over the forward estimates.
McGowan defended the increase and said it would likely be far lower because of the state’s conservative commodities pricing.
“Because we have a very conservative very low forecast, generally there is upside risk,” McGowan said.
The McGowan government expected the 2022-23 iron ore price to hit an average of US$77.5 but instead it hit US$112.30. The budget papers ay for every US$1 the iron ore price hits above the predictions a further $90 million is poured into the state through royalties.
Despite recording the sixth consecutive surplus, McGowan remained defiant on the state’s 3 per cent or $3120 wage offer that is causing angst among the government’s frontline workforce who are seeking pay rises closer to the inflation rate of 5.8 per cent.
“We gave many public sector workers a pay rise that was very significant,” he said.
“For many people, it would have been above CPI particularly if their income was $60,000 to $70,000.”
Growth slowing
WA’s economy is expected to grow by 4.25 per cent in 2022-23 – the largest year of growth since the boom years.
This is less than the predicted growth of 5.25 per cent in last year’s budget and next year’s growth is expected to temper significantly next year to 2.25 per cent.
McGowan attributed this drop to higher interest rates and more West Australians holidaying overseas.
The state government’s infrastructure pipeline has reached even bigger records of $39 billion thanks to cost blowouts.
Metronet alone has required an additional $1.2 billion in funding over the next two years including $528 million for the Morley-Ellenbrook line and $375 million for the Yanchep Rail Extension.
Despite the cost pressures resulting from the overheated construction market McGowan said no new delays we anticipated.
Other centrepieces of the budget not already announced include $2.8 billion for cleaner energy and electricity storage on the South West energy grid.
This includes 700 megawatts of battery storage at a new battery storage site in Collie and an expansion of the Kwinana battery that is more than six months delayed.
The state will also throw more cash at homelessness by getting work started on the social housing project in Bentley and spending $5.8 million to help set up a dedicated office of homelessness.
The off-the-plan stamp duty concession will also be extended and the threshold boosted for a cost of $33 million to get more people into higher-density housing.
WA Liberal Party treasury spokesman Steve Thomas. Credit: Holly Thompson
Larger businesses will rejoice over a decision to not renew a payroll tax levy applied in the McGowan government’s first budget in 2017. The decision will reduce the state’s payroll tax revenue intake by $191 million over the next three years.
The impact of natural disasters on the state is exacting a heavy toll on the budget papers with the total funding set aside for the response to ex-Tropical Cyclone Ellie hitting $322 million.
Opposition treasury spokesman Steve Thomas said McGowan would be embarrassed by the wealth he has announced while the debt forecasts were heading up.
“Mark McGowan has had something like $19 billion worth of surpluses over the last five years, and his budget predicts another $11 billion over the next four,” he said.
“It’s proposed to go to $36 billion in the biggest boom of any state in the history of this nation. When you want to pay down debt, you do it when you’ve got money in the bank and revenues are high, there will never be a better opportunity to pay down debt.”
Thomas also criticised the state’s limp efforts at diversifying the economy and for not going hard enough on the payroll tax reductions.