Big surplus funds spending spree from McGowan Government in WA

The surplus follows a larger $5.8 billion surplus last year, prompting McGowan to boast that the WA economy “continues to carry the country” and its finances were enough to make other states “green with envy.”

“Net debt is expected to fall below $30 billion this financial year, our third consecutive year of debt reduction and the lowest level of net debt since 2015,” McGowan says.

“The budget will remain in surplus over the forward estimates period, including a $1.6 billion surplus in 2022-23, based on cautious and conservative commodity price forecasts.”

Driving state finances are higher commodity prices for iron ore, which delivered $10.3 billion in royalty revenues, comprising almost all of the $11.5 billion in revenue from the mining industry. 

The government forecasts that Mining Royalty income will fall to $4.4 billion in 2022-23 due to a conservative estimate of the price of iron ore, which is expected to fall from US$130.16 a tonne today to $US66 per tonne by November.

The renegotiation of GST revenue sharing with the Commonwealth gives WA a minimum 70 per cent of the GST generated within the state, compared with the 1 per cent the WA State Treasury estimates the state would have received by 2024 under the previous arrangements.

GST grants totaled $5.4 billion this year and are expected to increase to $5.9 billion next year.

The buoyant property market also delivered a major increase in stamp duty, up to $349 million from $220 million.

The state’s strong financial position has enabled significant spending in key areas, with $445 million spent on a $400 energy rebate for 1.2 million Western Australian households.

“The size of its budget surplus puts WA in a unique position to pursue tax reform,” notes Michael Harris, CPA Australia’s General Manager in WA. 

“It’s likely that concern about potential risks to revenue as iron ore prices fall has curbed the government’s enthusiasm for reform.

“However, it’s something the state must do to remain competitive and support diversification, and it’s better to do it while finances are strong.” 

The budget delivers an additional $2.5 billion in health and mental health spending, taking new health spending to $5.7 billion over the last two budgets. 

These funds would be used for another 188 beds in public hospitals, improvements to emergency care and additional $223 million for health infrastructure.

McGowan says that WA has “always been a trading state”, and this requires ongoing investment in port and transport infrastructure. 

He announced an additional $1.3 billion investment in “economic diversification”, which included $332 million for a major upgrade to the Geraldton Port, $52 million for a storage facility to support oil and gas operations in the Browse Basin, and $120 million in road upgrades to support the Covalent lithium mine. 

The maintenance of WA’s Main Roads will continue to be in-sourced, with the state bringing 660 employees in-house over the next four years, with major road projects underway including $555 million to upgrade the seal regional highways Tanami Road and Outback Way.

In the education portfolio, the budget allocates an additional $505 million for education and training programs, including a $189 million allocation towards providing WA children with 15 hours of preschool programs each week. 

There is also $350 million for a new Remote Communities Fund, another $500 million for the state’s Climate Action Fund, and $400 million for the Digital Capability Fund for Government IT.

The budget does little to address the state’s labour shortage crisis, which in turn is helping to increase wage pressure. 

“Many would be disappointed that there was no clear commitment to address the state’s housing and accommodation shortage,” says Harris.

“The inability to find accommodation at a reasonable cost is making WA and its regions less attractive to workers.

“The upward pressure on wages saw Payroll Tax collections increase 16.2 per cent, which is significant and shows the pressure on the labour market,” concludes Harris. 

Population growth for the 2021-22 period is predicted to settle at 1.2 per cent. The unemployment rate is sitting at 3.4 per cent – a 13-year low – with the participation rate at 70 per cent. 

McGowan noted on two occasions that if the participation rate was closer to that of the eastern states (mid 60s), then the states’ employment rate per centage “would have a 1 in front of it”.

Small business

“This Budget is both conversative and responsible,” says Harris. “The WA economy is strong, although not without its challenges. The economy’s strength has created an environment where it’s attractive to start and grow a business.

“From a small business perspective, there were very few notable announcements. Given the support the WA Government has extended to many in the sector over the past few months, we’re not surprised. 

“However, to assist small businesses manage through a range of growing challenges, especially higher prices, supply disruption and severe labour shortages, we were hoping the WA Government would follow the lead of Tasmania and Victoria and provide incentives to businesses to seek advice from their adviser of choice.”

“CPA Australia research shows that as businesses fall into difficulty they become less likely to seek advice, right at the very point they need it. If the government can assist small business meet some of the costs associated with getting the right advice, this would help overcome this hurdle.”

There were some losers in the budget, however. WA drivers will pay another 6.4per cent for their licences, and 3.8per cent to register their cars. And if they take public transport, fares will go up 2per cent. 

Anyone purchasing an electric car will receive an incentive, with a $3500 rebate for purchases up to $70,000, although EV drivers will also be high with a 2.5 cents per kilometre tax for road maintenance in lieu of petrol taxes. 

There is a $500 million commitment to the Climate Action Fund, which includes $60 million specifically for the clean energy car fund scheme and a $400 electricity credit for every West Australian household. 

Less publicised budget items include $19.3 million to attract people to Exmouth to view next year’s total solar eclipse, while the World Heritage listed Fremantle prison will get a $12 million upgrade.