Article by Josh Zimmerman courtesy of the West Australian.
Premier’s economic update is SO GREAT he had to find ways to shrinks $1,844,000,000 surplus Premier Mark McGowan’s embarrassment of riches has been starkly revealed in yesterday’s mid-year Budget update which shows this year’s surplus rising to $1.84 billion despite big increases in spending as mining royalties soar. It comes as the State Government upgraded its revenue for 2022-23 by $2.2 billion since the May Budget with iron ore alone tipping in an additional $1.5b.
The Opposition seized on the update to claim WA was still reaping the benefit of “massive” income streams and accused Mr McGowan of “hiding his revenue” to build an election war chest. The bonanza is likely to intensify efforts by police and nurses for a better pay offer.
WA has cemented its status as the best-performing economy in Australia with the forecast surplus for 2022-23 upgraded to $1.844 billion, with mining royalties again handing the State a revenue windfall that has helped offset a mid-year McGowan Government spending spree.
The State’s economy is also now expected to grow by 3 per cent this financial year — a full percentage point higher than tipped at Budget time in May. In a result likely to light a fire under nurses and police officers demanding improved pay offers, combined surpluses across the next four years have been revised upwards by about $1.5b.
The net debt position has also improved, now expected to hit $32.2b by 2025-26 — $1.7b less than anticipated just seven months ago.
The modest increase to the current year’s surplus — up from $1.6b in the Budget in May — comes despite Premier Mark McGowan’s mid-year review on Thursday confirming $4.8b in extra spending over the next four years, $2b in 2022-23 alone.
Government enterprises have also been told to keep the dividends they ordinarily pay to government, ripping $1.5b out of the Budget this year.
Nearly half that money ($667 million) will be retained by the Water Corporation. It means Perth’s third desalination plant in Alkimos is now close to fully funded.
While the budgeted iron ore price has been upgraded from $US77.50 per tonne in May to $US87.40, the commodity has averaged more than $US100 across 2022-23 so far and was trading at $US108 on Thursday, increasing the likelihood of further royalty windfalls.
The Opposition seized on the mid-year review to claim WA was still reaping the benefit of “massive” income streams and accused Mr McGowan of “hiding his revenue” to build an election war chest. “His revenue is so high that he has to hide it because it increases the pressure on him to spend it on the welfare of the people of the State,” shadow treasurer Steve Thomas said.
But the Premier was at pains to stress the global economic outlook had “deteriorated” — making a recession next year more likely — and that the Government upping its public sector wages offer accounted for $1.4b of the extra spending over the forward estimates. “By being cautious and careful and budgeting prudently you can avoid dramatic outcomes in the future, which I suspect are just around the corner in other States,” Mr McGowan said.
Other new expenditure since May includes $418m for wind farms and batteries to accelerate decarbonising WA’s main power grid, a previously announced agriculture research lab ($320m) and more than $500m on various economic diversification initiatives.
WA’s contribution to the National Disability Insurance Scheme was also slated to rise by $232m, while extra interest on government debt will cost $1.6b over the next four years. Offsetting that spending is the more than $2.2b in additional revenue now expected to flow into Treasury coffers this year compared with Budget time. Iron ore alone accounts for $1.5b, with WA’s burgeoning lithium industry tipping in an extra $506m.
Total taxation has also been upgraded by $871m, headlined by payroll tax (up $418m) and stamp duty on vehicles ($189m) and property ($124m). WA’s GST share is also expected to go up by $479m and rising gas prices will add $176m to North West Shelf grants.
In another revision likely to be seized on by nurses and police officers, the inflation forecast for 2022-23 has nearly doubled since May to 5.25 per cent. Wages growth is forecast at just 3.75 per cent.
Asked whether there was room to sweeten the Government’s public sector wages policy, Mr McGowan said: “Our pay increases are set. That is our position.”
EY senior economist Paula Gadsby said WA’s economy was outperforming other States but warned a slowdown was likely.
“In an environment of rising interest rates, falling real wages and falling house prices, WA consumers will start to feel the pinch,” she said.
It’s cooking the books to SHRINK the surplus | ANALYSIS | Josh Zimmerman
Political leaders of all persuasions are prone to some creative accounting when it comes to budgets.
It’s just that they’re usually trying to pump up their own tyres rather than take a scalpel to them.
Make no mistake: the rivers of gold that helped Premier Mark McGowan deliver consecutive surpluses totalling nearly $12 billion continue to run, albeit at a rapid rather than record-breaking rate.
The mid-year review announced on Thursday just does a good job of directing that money anywhere but the State Government’s bottom line.
Telling Synergy, the Water Corporation and various other government businesses to hold on to $1.5b in dividends ordinarily due to Treasury cuts what would have been a $3.3b surplus nearly in half. And that’s before you factor in the $4.8b in additional spending since May — $2b this year — an amount Under Treasurer Michael Barnes conceded was “more than a typical mid-year review”.
A significant chunk of that money is discretionary and in different political circumstances — for instance, those faced by the Barnett government — likely would have been deferred to next year.
Colin Barnett would have moved heaven and earth for a $1.8b surplus ahead of the 2017 election.
Instead, his prior habit of over-egging the iron ore price in the interest of delivering a pretty set of books blew up in his face and he was forced to limp to the polls forecasting a near $4b deficit.
McGowan, mindful of his continuing wages stoush with nurses and police, has opted for the opposite approach. It’s more prudent but potentially just as politically fraught.