WA Budget Briefing Note 2020-21

Analysis

WA Budget Briefing Note 2020-21

WA Government basks in fortune but exercises prudence

The State Treasurer, Hon Ben Wyatt MLA, handed down his fourth State Budget on Thursday 8 October 2020.

This Budget comes amid the global economic turmoil caused by the COVID-19 pandemic, and just five short months before Western Australians go to the polls for the 2021 State election.

Highlights
  • The State Government faces a difficult balancing act in delivering the 2020-21 Budget: using its operating surplus to fund economic support measures as WA emerges from the COVID-19 crisis, without doing damage to the Budget over the longer term.
  • The result is a mix of fortune and prudence. Fuelled by surging iron ore royalties, the Government expects to deliver an operating surplus of $1.2 billion in 2020-21, with surpluses to follow in each year of the forward estimates period to 2023-24.
  • That doesn’t mean spending isn’t on the cards. Those operating surpluses don’t include capital expenditure through the asset investment program. This Budget delivers record high asset investment, totalling more than $27 billion over the forward estimates, including almost $10 billion for road and public transport infrastructure.
  • Funding that big capital spend will plunge the public sector cash balance into a deficit of around $3.4 billion in 2020-21, and more cash deficits will follow over the subsequent two years.
  • Paying for those cash deficits represents a net additional borrowing requirement, driving public sector net debt up from $35.4bn in 2019-20 to a peak of $42.9bn in 2022-23. On balance, that’s a sensible approach: debt is being used to fund infrastructure, while recurrent revenue covers recurrent expenditure in the operating account.
  • The Government has also been exceptionally lucky. The iron ore price rally delivered record royalty revenue in 2019-20, reaching $7.6 billion, and is expected to continue through much of 2020-21. WA Treasury is budgeting for an average iron ore price of around US$97 per tonne over this financial year, before dropping to US$64 over the remainder of the forward estimates. As a result, iron ore royalty revenue is projected to drop to between $4.8 billion and $5.0 billion per annum between 2021-22 and 2023-24.
  • But the Budget’s economic and financial projections are all subject to one big caveat. It assumes that an effective health solution (like a widely available vaccine) to the pandemic presents itself over the next 12 months, resulting in the State’s hard border coming down in early 2021 and international borders being relaxed in late 2021.
  • If the health solution is delayed, then so too will be the economic recovery – and that will hit the Budget both through lower revenue and higher expenses, assuming that the Government responds to such a situation by providing additional fiscal support.

WA Budget Briefing Note 2020-21

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WA Budget Briefing Note 2019-20 - May 2019

WA Budget Briefing Note 2018-19 - May 2018

Published: October 2020

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