Article by Peter Law courtesy of the West Australian
Despite conservative estimates, WA’s resources sector fires on all cylinders with record-high commodity prices pouring tens of billions of dollars into economy.
WA’s booming resources sector remains the ace in the deck for the Federal Government’s Budget repair efforts, with iron ore and LNG exports poised to continue delivering much-needed revenue windfalls in the face of rising debt.
Iron ore alone — the vast majority extracted from the Pilbara — accounted for nearly one-quarter of the nation’s record export earnings last year, pouring tens of billions of dollars into the economy through royalties and taxes and helping to slash the projected 2022-23 deficit in half.
The stunning turnaround — March’s forecast $78b shortfall for the current financial year was revised to $36.9b — was also the result of surging liquefied natural gas, oil and coal prices after Russia invaded Ukraine.
A change in government has not brought a change in Treasury’s practice of relying on conservative commodity price assumptions — a strategy that bakes “upside risk” into revenue and debt projections if iron ore, LNG and coal can outperform expectations.
Iron ore, trading about $US91 a tonne free on board (FOB) across September, is assumed to “glide down” over the next six months to reach its long-term average $US55 a tonne FOB by the end of March.
Over the same period, thermal coal is tipped to fall from its current eye-watering $US438 per tonne to $US60 per tonne, metallurgical coal from $US271 per tonne to $US130 per tonne and LNG from $US934 per tonne to $US630 per tonne.
Treasury analysis found that if those key commodity prices hold at their current levels for just three more months — and then revert to long-run averages by next July — almost $44 billion would be added to nominal GDP and tax receipts would jump by $9.9 billion.
A separate “sensitivity analysis” found every $US10 rise in the average annual iron ore price above $US55 would contribute $6.9 billion to nominal GDP and $1 billion to tax receipts.
Despite the Budget highlighting the contribution of the State’s mining and resources sector to the nation’s finances, WA only received $635 million (8 per cent) of the $8.1 billion of new funding for road and rail projects.
That included $400 million for the Alice Springs to Halls Creek corridor upgrade (Tanami Road) and $125 million for electric bus charging points in Perth.
No time frame was given for Labor’s election pledge to contribute $87.5 million towards the William Street level crossing and new elevated Beckenham station.
The Budget moved $6.5 billion of planned spending beyond 2025-26, by which time the Government expects inflation to ease and the market to have greater capacity to take on the work.
As revealed by The West, $375 million over four years was confirmed for Perth’s onestop cancer centre, with the cost to be shared 50-50 with the State. Mark McGowan, however, has warned he expected the price to rise.
A $75 million election promise to build a “surgicentre” at Bentley Hospital was confirmed, though the money won’t really start flowing for another two years and only $33 million was slated to have been spent by 2025-26. Labor’s cash splash in marginal seats — which includes more than $40 million towards pools in Alkimos, Ellenbrook and Kalgoorlie — will be funded from “closed grant programs” worth a combined $1.3 billion.
More than $500 million was earmarked for port infrastructure upgrades in the Pilbara to support “emerging green industries and technologies”, while there was also $50 million towards Perth’s Aboriginal Cultural Centre, $6 million for Telethon and a $7.9 million lifeline for the Activ Foundation.
After years in the starring role, iron ore was tipped to potentially take a back seat to energy commodities. Treasurer Jim Chalmers said the steelmaking commodity’s price had “come off really substantially since the middle of the year” while thermal coal and gas — both used in energy generation — had remained elevated.
He said while the Government had been “earning a lot of money” out of commodity exports in recent months, it remained important to be “really careful and really conservative” about pricing forecasts.