Western Australian Premier and Treasurer Mark McGowan has delivered the seventh State Budget of his Government’s tenure, with a strong surplus enabling ongoing infrastructure investments and targeted cost of living relief. Highlights include:
Overall, the Budget shows that the State’s economy has bounced back strongly from COVID-19 and now faces the challenges of a hot economy with a 4.25 per cent growth rate and unemployment rate of 3.5 per cent.
While mining royalties and taxation measures continue to deliver significant revenue to the Government, it is worth noting that GST reforms are now providing a $6.4 billion boost to Western Australia’s bottom line. As noted in the Budget Papers: “If not for the reforms, Western Australia’s relativity would have decreased to just 9.8% in 2023-24. This would have provided the State only $0.9 billion from an estimated $86 billion national GST pool, highlighting the critical nature of the 2018 GST distribution reforms.”
The strength of the State’s economy and size of the surplus will intensify the lobbying by other State Premiers for changes to the GST distribution arrangements.
In light of a run of large surpluses and continuing labour shortages, major fights loom with public sector unions and the community sector over wages and spending priorities.
The State Government has been frustrated in delivering their impressive infrastructure program by labour shortages, cost escalations and ongoing supply chain issues. With less than two years until the next election, the Government will be keen to get major projects either significantly underway or completed.
A $4.2 billion operating surplus in 2022-23 has enabled significant spending, driving a 9.1 per cent expense growth against a 3.5 per cent revenue growth. However, the previous year’s $6 billion surplus has helped maintain a healthy surplus for 2022-23 with $2.9 billion estimated for 2026-27.
Net debt is predicted to grow to $35.9 billion by 2026-27 with global economic turmoil and rising interest rates expected to significantly dampen consumer spending, impacting revenue growth over the forward estimates.
Continuing to add pressures to housing and financial management is a strong 2 per cent population growth for 2022-23, maintaining relative strength to the 2026-27 financial year to 1.6 per cent. Unemployment remained low at 3.5 per cent for 2022-23 with a modest increase to 4.5 per cent forecast for 2026-27.
Notably, the impacts of housing construction and delivery challenges will be felt fully in 2024-25 with a 7.75 per cent decline in dwelling expenditure. A rebound is predicted in 2025-26 in line with strong population growth.
As widely expected, the State Government put cost of living front and centre in today’s State Budget with a $715 million Cost of Living package. The centrepiece is $566 million in energy bill relief with $450 million from the State, and $116 million from the Commonwealth (partially funding the support for 350,000 specific households and small businesses).
All Western Australian households will receive a $400 Household Electricity Credit, bringing the total potential assistance to in-need households to more than $800 when combined with targeted Federal electricity credits and existing energy assistance payments. In addition, small businesses with annual electricity consumption of less than 50MWh will receive a $650 credit.
The average household will face an increase of 2.4 per cent to government fees and charges, excluding the impact of the electricity credit. This increase sits below projected Perth CPI (3.5 per cent next year), costing the State Budget $39 million over the forward estimates. There are notably higher rises for Motor Vehicle License charges (3.9 per cent) and the Emergency Services Levy (5 per cent).
This year’s State Budget includes a commitment to address housing affordability and homelessness in Western Australia with an additional $750 million for initiatives bringing the total spend over the forward estimates to $2.6 billion.
Funding includes support for a dedicated Office of Homelessness to deliver the State’s 10-year Homelessness Strategy and a $450 million increase to the Social Housing Investment Fund. $48 million is committed to enable the remediation of the Bentley Residential Redevelopment project site, with $55 million to upgrade water infrastructure. Other initiatives to get Western Australians into their own homes and free up rental stock include the $33 million extension and expansion of the off-the-plan transfer duty assistance and amendments to Keystart.
In regional Western Australia, $49 million has been committed to partner with community housing providers for a pilot of 100 supportive landlord homes and an additional $12 million aimed at increasing housing and land supply in regional Western Australia.
To meet their commitment to transition the State’s electricity grid, the State Budget includes a significant $2.8 billion package for renewable energy and storage initiatives, including:
Compounding the State’s challenge in the energy sector is its ability to alleviate construction market constraints such as labour and skills shortages and supply chain disruptions. To combat this, the Western Australian Government is reprofiling the $39 billion Asset Investment Program over four years in an effort to ‘smooth’ construction pipelines and reduce impact on the broader construction sector. The Government intends for this provision to affect project timing only, without further increasing debt.
For 2023-24, significant infrastructure commitments include an additional $1.7 billion for the State’s signature METRONET project, $1.5 billion for public school facility upgrades, $196 million for Western Australia’s third desalination plant in Alkimos, and $136 million to increase port capacity, technology investments and expansion of wharf facilities at the Southern Ports Authority, the Fremantle Port, and the Port of Broome. $72 million in additional funding has also been allocated for land acquisition and business case development for Westport.
The State Budget reinforces the ongoing importance of Western Australia’s primary industries to the State’s economy and finances. In the 2022-23 financial year, royalty income is estimated to be $11.2 billion representing 25.9 per cent of the State’s revenue. Due to the negotiated GST floor, more of this revenue stays in the State.
What is notable in this Budget is the increasing prominence of lithium to the State’s bottom line – overtaking gold as the second most valuable source of royalty income, surging from $261 million to an extraordinary $910 million in 2022-23.
In contrast to the ongoing financial and economic dependence on royalty income are new spending initiatives focussed on diversifying the State economy in terms of the State’s mineral portfolio, but also other industries and trading partners.
With regards to resources, $40 million will be invested into a suite of initiatives to develop the burgeoning critical minerals sector. For renewable hydrogen, $3 million will be spent over 2023-24 and 2024-25 on various activities such as planning for large scale renewable energy zones, and developing business cases. In addition, funding has been allocated to continue the LNG Jobs Taskforce for another two years.
As with the previous six Budgets, the State Government’s approach to financial management continues to be considered and fiscally conservative. The State Government seeks to provide community support through further investment in transport infrastructure, health, economic diversification, innovation and environmental initiatives as well as focusing on cost of living issues.
At the 2021 State Election, the Premier promised to keep WA safe and strong. While this was a nod to his leadership during COVID-19 and the threats of Clive Palmer, the real challenge ahead will be protecting Western Australia’s hard fought GST reforms from other State Premiers. Indeed, protection of Western Australia’s GST arrangement was the stated reason for the Premier taking on the role of Treasurer.
Some initial commentary has argued that strong finances are an opportunity for greater reform, including on taxation. While the Premier has prioritised fiscal conservatism, industry’s response over the weeks and months will be worth monitoring closely.
A deeper examination of the State Budget provides plenty of insight into the State Government’s policy priorities and direction for growing and diversifying the economy.
To discuss in further detail, including what opportunities it presents for you, please contact:
Bruce Campbell-Fraser, Senior Adviser and Perth Office Head, Communications, SEC Newgate – [email protected]
Joey Armenti, Senior Adviser, SEC Newgate – [email protected]
Lenda Oshalem, National Campaigns Director, SEC Newgate – [email protected]