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BUDGET BY NUMBERS

Despite the significant hit to economic activity in the June quarter, Western Australia’s economy is expected to grow by 2.0 per cent in 2019-20 and 1.25 per cent this financial year. Even the domestic economy, which excludes exports and imports, is expected to grow marginally at 0.5 per cent this year.

If this growth is achieved, it will have been driven by the most significant infrastructure spending package ever recorded in WA. The Government’s Asset Investment Program is expected to increase by 46 per cent this financial year compared to last. 

While the hit to economic activity is not projected to be as severe as previously feared, spare capacity in WA’s labour market is expected to remain elevated for some time. The headline unemployment rate is forecast to peak at 8 per cent this year before gradually falling to 6 per cent in 2023-24. Before the pandemic, WA’s unemployment rate was 5.2 per cent. 

In good news, business investment increased by 9.3 per cent in 2019-20 – returning to growth for the first time in seven years. This was largely driven by investment in mining-related projects, which managed to continue uninterrupted throughout the pandemic. While mining investment is expected to remain solid this year, business investment growth is projected to slow to 0.75 per cent due to underlying weakness in the non-mining sector, which accounts for around 37 per cent of total business investment.

Looking to the State’s finances, the impact of the COVID-19 pandemic and the scale of the Government’s economic response has seen a dramatic change in the fiscal outlook.

After years of budget repair, the need to support the economy through the pandemic has reversed all those gains, with WA recording a cash deficit of -$3.4 billion this year. 

At the same time, net debt is expected to peak at $42.9 billion in 2022-23, $8.3 billion higher than expected in the December 2019 Mid-Year Review. While significant, interest repayments on this debt are expected to be lower than they were forecast in December, reflecting record-low borrowing costs.

All told, the economic and fiscal outlook remains highly uncertain. Indeed, the most significant risk to the outlook is the potential for a second wave of COVID-19 in WA.

STATE BUDGET ANALYSIS 2019

Full Press Release

ABN: 96 929 977 985 ARBN: 099 891 611 

Copyright © 2020 Chamber of Commerce and Industry of Western Australia

The WA Recovery Plan forms the centrepiece of the State Government’s 2020-21 Budget. It includes:

  • $92.4m for our local manufacturing sector and $3.5m in Local Capability Funds for local PPE producers.

  • $62m to support Western Australians access Vocational Education and Training, including $4.8m to support business to re-engage out of work trainees or apprentices.

  • $8.5m for grants to WA businesses in the Naval Shipbuilding supply chain to provide apprenticeship opportunities.

  • Funding for red-tape reduction, including a joint Commonwealth-State Environmental approvals online portal and for implementing reforms to the planning system. 

We have called on the Government to establish an overarching manufacturing Industry 4.0 strategy, the focus of which should be on accelerating the adoption of Industry 4.0 technologies. The strategy would provide an opportunity for the Government to demonstrate the ongoing relevance of manufacturing and the value proposition of Industry 4.0 technologies.

We welcome the Government’s investment in the State’s skills pipeline – it will ensure WA industry has the confidence to employ young people and provide them with the training they need. However, it is essential that the Government complements this with meaningful reforms to the VET market to ensure the system is competitive and flexible, to better meet the needs of employers.

The Government’s red-tape reduction efforts will liberate many WA businesses from the grinding costs and delays of regulatory burden, allowing them to focus on growing their business. To provide confidence that the reforms will be implemented expeditiously, the Government should commit to, and publicly report, progress against an implementation timeline.

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COVID-19 BUSINESS SUPPORT

 STRONG STANCE ON 
COMPANY TAX PLAN WELCOMED

Just under $1b was spent funding fee waivers, subsidies and tax breaks to assist WA businesses weather the pandemic. Key measures included:

  • $204m for a once-off $2500 electricity credit for small business.

  • $172m payroll tax exemption on JobKeeper payments.

  • $165m in payroll tax waivers for small and medium businesses, as well as a reduced payroll threshold.

  • $107m for a once-off grant of $17,500 for business with a payroll between $1m and $4m.

  • $100.4m in licence fee waivers, including for liquor licences and tourism ventures.

  • $100m land tax relief for commercial landlords.

  • $25m in commercial rental relief.

  • $7m for non-residential utility charges. 

In line with CCIWA’s recommendation in our pre-budget submission, the Budget confirms that the progressive payroll tax scale will not apply in 2023-24 – the final year of the forward estimates. This will provide certainty to businesses, including any considering relocating to, or investing, in WA.

However, while the Budget confirms the Government has frozen water charges for households, those charges will increase 2.5 per cent for small businesses.

Similarly, while households will have a freeze on electricity tariffs, small businesses that are non-contestable Synergy customers will cop a 3.7 per cent increase. CCIWA has long called for introducing contestability to this market. Allowing small businesses to choose their electricity retailer would drive down the high energy costs that are currently holding businesses back.

INFRASTRUCTURE

Record $27.1b infrastructure spend to accelerate economic recovery.

The WA Government has announced a record $27.1b infrastructure spend over the next four years to create a long-term pipeline of works, boost job creation, and support economic recovery efforts. This includes the $5.5b infrastructure component of the WA Recovery Plan. 

Major initiatives include: 

  • $9.7b road and public transport investment, including $5.7b for METRONET and $2.39b in major roads infrastructure and maintenance funding. 

  • $3.8b invested in electricity infrastructure, including a $127m investment in renewable energy technology.

  • $2.7b to ensure Water Cooperation can maintain and invest in its vital assets.

  • $1.7b for the housing sector, including $147m being spent on the $20,000 building bonus program.

  • $1.5b investment in school facilities and $1b in health infrastructure.

  • $330m for port infrastructure upgrades and $97.2m to progress Westport.

  • $189m for the Perth City Deal to re-energise the CBD, worth a total $1.5b.

The roll-out of the investment will be supported by the establishment of an infrastructure delivery unit in the Department of Finance to ensure the projects go ahead as planned.

HEALTH AND COMMUNITY SERVICES

Additional funding for mental health and social housing to support WA’s most vulnerable.

The WA Recovery Plan includes a $453m investment in health and mental health. $306m has been committed to enhancing and expanding mental health services, providing vital support to the community.

The WA Government is investing $319m in a social housing economic recovery package, which will refurbish 1500 homes, deliver 250 new homes, and roll-out a maintenance program for 3800 regional homes.

The scale of the expected economic damage is not as severe as feared, but this hinges on the State Government’s record infrastructure investment spend.

The Government rolled out the largest SME support package in living memory during the crisis but now it is turning off the tap.

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OUR VERDICT

WA RECOVERY PLAN

The Budget confirms funding for the Government’s $5.5b Recovery Plan released in July.

STATE BUDGET ANALYSIS 2020

BUSINESS OVERLOOKED FOR CENTRAL ROLE IN ECONOMIC RECOVERY

Yesterday’s State Budget unveiled the Government’s expectations – remarkably – that the economy will grow amidst the biggest economic challenge we’ve faced since the Second World War. Even once imports and exports are taken out of the equation, the domestic part of the economy is still expected to grow marginally at 0.5 per cent.

This hinges on what must be the biggest increase in infrastructure spending ever recorded – an increase by 46 per cent this financial year compared to last. The record spending has ensured the Government has recorded a cash deficit for the current financial year.

Beyond infrastructure spending, there was little else in the Budget to promote growth.

The business community wanted to see a range of broad-based initiatives that would have ensured a central role for the private sector alongside the Government in fighting the economic challenges.

Further reductions in the tax burden in WA was a good place to start.

While it’s welcome that households will see a freeze in their electricity charges, the Budget confirmed those charges will increase 3.7% for small businesses.

We should also be capitalising on our success in controlling the spread of the virus, by leaning into opportunities to bring skilled workers and international students to WA. If we wait too long to position the State in key markets, we will lose out to bolder states. Ultimately, that will mean fewer opportunities for current and future generations of Western Australians.

We owe it to future generations to resist becoming inward-looking and distrustful of the wider world and its people, and to take the opportunity that lies in front of us.