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Category: Government and Politics / Business, Economics and Finance

Nahan eyes 'basic problem' despite $527m drop in WA deficit

Thursday, 22 Dec 2016 10:08:01 | Andrew O'Connor

Mike Nahan used the mid-year review to push for GST reform and the part-sale of Western Power. (ABC News: Andrew O'Connor)

The Barnett Government's final economic forecast ahead of the March state election shows Western Australia will record a smaller than forecast deficit this year, but the budget will still finish $3.39 billion in the red.

Key points:

  • Budget deficit for 2016-17 revised down from $3.91b to $3.39b, debt also down
  • Extra $3.7b from mining royalties over four years not enough to fix problems: Nahan
  • Treasurer says Western Power part-sale the "circuit breaker" needed to reduce debt

Treasurer Mike Nahan released the Government's mid-year review on Thursday morning, showing a decline in the deficit of $527 million, dropping it from the $3.91 billion forecast in the May budget.

The budget is still expected to return to the black in 2020 with a surplus of $1.1 billion.

The review also revises downward the projection for state debt, from a forecast peak of more than $40 billion in June 2020 to a high of $39.7 billion.

Figures show a massive increase in royalty income on the back of higher-than-forecast iron ore prices, which have surged above US$80 per tonne this year.

Royalty income is expected to generate an additional $3.7 billion over the four-year forward estimates.

Dr Nahan said the extra royalties would help, but would not solve the state's budget problems.

"Huge increases in iron ore royalties will not solve our basic problem, because when we get additional royalties in the first two years that helps us, but in the out years they take it away," he said

WA's GST share set to rise more slowly

The review also shows WA's GST share recovering more slowly after a precipitous drop following the end of the mining boom.

Australian coins and banknotes. Photo: The state's share of each dollar raised through the GST in WA is now set to reach 66 cents by 2020. (ABC News: Nic MacBean)

In its May budget, the Government predicted the state's share of each dollar raised through the GST in WA would reach 70 cents by 2020.

That figure has been revised downward to 66 cents in the dollar.

"We're not going to recover under our estimates to anywhere near 100 per cent into the future," Dr Nahan said.

"We're always going to be a major contributor under this current GST (distribution system). Unless there is a fundamental change to the GST, this will remain the same."

Dr Nahan said the GST floor price promised by Prime Minister Malcolm Turnbull earlier this year of around 70 cents in the dollar would help WA, but he acknowledged there was no clear timeline for when it would be introduced.

"Our real problem is that we get 20 per cent of our income by probably the most volatile income stream you can imagine — spot iron ore prices," he said.

Tax revenue down $1.9b as Nahan seeks 'circuit breaker'

The state also faced declines in revenue within its own tax base, such as payroll tax and stamp duty, Dr Nahan said.

"Our tax revenue sources on all categories are shrinking more rapidly at the mid-year review than expected in the budget, and all are negative growth," he said.

Nahan eyes 'circuit breaker'' amid $527m drop in WA deficit Photo: The part-sale of Western Power is the key plank of the State Government's debt reduction plan. (ABC News: Andrew O'Connor)

Taxation revenue has been revised down by $1.9 billion over the forward estimates, including a $1.235 billion reduction from payroll tax.

He said give the current expenditure and revenue projections, WA needed a "circuit breaker" to reduce its debt to an acceptable level.

"Selling assets you don't need to reduce debt but importantly fund capital is the circuit breaker we need," he said.

Dr Nahan said the $11 billion sale of 51 per cent of Western Power would be that circuit breaker, providing both $3 billion in capital works funding and $8 billion to reduce debt.

The review shows a $28 million blowout in the cost of the new Perth Children's Hospital as a result of its delayed opening.

Meanwhile, Treasury officials are now forecasting WA's unemployment rate will remain above 6 per cent for at least four more years.

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