Our Verdict

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Copyright © 2019 Chamber of Commerce and Industry of Western Australia

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BUDGET BY NUMBERS

Government spending is expected to make up 11.3 per cent of the WA economy this year (2018-19), falling to 10.5 per cent in 2022-23, with the Government heading calls by CCIWA to reduce its size and keep taxes steady.

Over the four years from the Government’s first budget (2017-18) expenditure is now forecast to be $7b cumulatively lower than expected.  

While the size of the Budget in the economy is forecast to diminish over the forward estimates, the Government must remain focused on controlling expenditure growth.  

WA’s revenue base is highly influenced by shifts in global trade patterns, so maintaining strict spending controls will help boost the operating balance and minimise exposure to downward swings in the global economy.

STATE BUDGET ANALYSIS 2019

Full Press ReleaseBudget by Numbers

The net operating balance is expected to return to positive territory in 2018-19, recording an expected surplus of $553m.  

This was CCIWA’s highest priority in its 2019-20 Pre-Budget Submission to achieve debt reduction. A cumulative $9.4b in operating surpluses are expected over the five years to 2022-23.  

Higher than expected revenues have driven the improved fiscal outlook and have been underpinned by an upward revision to WA’s GST top-up payments and higher than expected iron ore royalties, although total GST receipts have fallen.  

CCIWA congratulates the State Government for its disciplined management of State finances.

Net debt is expected to peak at $39.5b in 2019-20, reducing to $37.8b by 2022-23. The peak is higher than previously forecast as a result of changing accounting standards. Under the old standards the peak of net debt would have been reached in 2019-20 at $36.97b.  

The State Government's commitment to apply the full amount of GST top-up payments to debt reduction has driven the downward revision across the forward estimates period as well as surging but temporary iron ore royalties.

Jobs & TrainingGST & RoyaltiesInfrastructureEconomic Diversification

STATE BUDGET ANALYSIS 2019

GOVERNMENT’S HARD WORK PAYS OFF BUT NO RELIEF FOR STRUGGLING SMALL BUSINESSES

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Copyright © 2019 Chamber of Commerce and Industry of Western Australia

The first Budget since the Government’s GST deal will result in a $1.2b top-up payment delivered to WA across 2018-19 and 2019-20. This exceeds the forecast $814m payment, largely due to a recent boost in iron ore royalties for the State.    

Without the GST deal the Government would have received $3.4b less GST over the forward estimates (compared to the mid-year update) as a result of higher iron ore royalties and a smaller than expected GST pool.    

Historically, higher royalty income punished WA by shrinking our GST share. Thanks to reforms championed by CCIWA, the additional top-up payments will ensure WA gets 70 cents in the dollar this year, softening the blow overall.

BILLIONS IN GST TOP-UPS BUT DOWN OVERALL

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Surging iron ore prices have delivered a $2.1b windfall to the State Budget over the forward estimates, including a $680m boost for 2018-19. Total royalty income is expected to be $6.2b this year.    

Iron ore royalties have increased after a price spike resulting from constrained supply of iron ore globally. This followed the January collapse of a Brazilian tailings dam and the subsequent decommissioning of additional dams in the region.    

CCIWA continues to urge the State Government to commit revenue windfalls to reducing net debt. WA’s interest payments are expected to grow even after net debt decreases, highlighting the continued need for disciplined management of State finances.

$2.1 BILLION IRON ORE ROYALTY WINDFALL TO BOOST REVENUE

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$500 MILLION BOOST TO LITHIUM, GOLD AND OTHER ROYALTIES

Higher royalties from gold ($167m) lithium ($190m) and other sources ($167m) have boosted the Budget by more than $500m over the forward estimates.  

Mining continues to drive the economy’s recovery and boost the budget bottom line in the process.

INFRASTRUCTURE

 STRONG STANCE ON 
COMPANY TAX PLAN WELCOMED

A $9.1b investment over four years on road and rail projects, including the Government’s METRONET project, will help create a long-term pipeline of works while boosting job creation.

CHRIS RODWELL

CCIWA CHIEF EXECUTIVE OFFICER

An additional $266m has been provided for METRONET and other public transport projects in the budget, bringing the total investment in METRONET to $4.1b over the next four years. This will create a long-term pipeline of works and boost job creation, supporting the Government’s 150,000 jobs target.

Seven dangerous level crossings along the Armadale Line will be removed as part of this funding, with $17.5m committed to develop a detailed design and business case to improve the network and travel times for motorists.

$4.1B INVESTMENT FOR METRONET

The Government’s $30m investment to redevelop the East Perth Power Station presents a significant opportunity to boost the construction sector and create new jobs. Establishing a new Metronet precinct will improve public transport connectivity and housing construction while creating a heritage icon for WA.

The Commonwealth and State Government’s co-shared 50-50 $230m funding to rebuild the Fremantle Traffic Bridge will improve freight infrastructure at the Fremantle Port.

$1.3B ROAD INVESTMENT

RENEWAL PROJECTS  

An additional $1.3b will be invested in 25 major road projects, including upgrading Tonkin and Roe Highways to help ease congestion for motorists. This will be funded 80:20 by the Federal and State Governments and take total investment to $4.2b over the forward estimates.

Infrastructure Australia’s 2015 audit made it clear that without investment in the State’s infrastructure, WA will overtake Sydney as the nation’s most congested city by 2031 at a cost of more than $16b a year. Seven out of the 10 most congested roads in the country will be in Perth.

JOBS & TRAINING

The Government has missed a golden opportunity to support small businesses to create new jobs by maintaining the highest jobs tax in the country.

CCIWA was disappointed to see no reduction in the payroll tax burden for small business in the State Budget. WA has the highest payroll tax burden of any state, which means it is more expensive to create a job here than anywhere else in the country.

Our Pre-Budget Submission called for an increase to the payroll tax threshold by $100,000 (from $850,000 to $950,000) to create almost 900 jobs in the first year alone and boost the State’s economy by $283m. Payroll tax is a critical lever to boost jobs creation because it supports all industries across the economy.

Employment growth for 2019-20 is forecast to be 1.75 per cent, with a further 23,500 jobs to be created in the period. Absent of significant changes in payroll tax, the Government will struggle to meet its target of creating an additional 150,000 jobs by 2023-24.

PAYROLL TAX – WA's JOBS TAX

$182.4m for the implementation of a new employer incentive scheme, including $45m for regional WA, will provide the certainty businesses need to employ new trainees and apprentices. The new funding will also ensure WA can leverage additional Commonwealth funding under the Skilling Australian’s Fund National Partnership Agreement.  

This is welcome news for businesses, following 18 months of uncertainty after the Government stripped $20m in tax incentives from the system at the end of 2017, which CCIWA strongly advocated against.

The new scheme will be broad-based and available to all apprentices and trainees, with a few caveats. It will also utilise a loading mechanism to account for priority qualifications and regional delivery.

EMPLOYER INCENTIVE SCHEME PROVIDES CERTAINTY

BROADENING KEYSTART ELIGIBILITY

The Government will support first homebuyers by temporarily relaxing Keystart criteria with the aim of kickstarting WA’s struggling construction sector and increasing jobs.  

Increasing Keystart's income limits by $15,000 for singles and couples and $20,000 for six months from July 1, will expand the number of people eligible for a Keystart loan.  

According to CCIWA’s latest Business Confidence Survey, 59 per cent of construction firms identified weak demand as the biggest barrier to growing their business – up 28 per cent since December 2018.

ECONOMIC DIVERSIFICATION

Additional funding for international education, tourism, agriculture, defence and health research will help diversify the WA economy. It is critical that these activities are integrated with a broader strategy for international market development to fully leverage the Government’s efforts and deliver the greatest return on investment.

CHRIS RODWELL

CCIWA CHIEF EXECUTIVE OFFICER

StudyPerth, WA’s peak international education marketing body, will receive an additional $4.5m to more effectively market Perth as Australia’s pre-eminent international education destination.

On average, international students spend seven times more than overseas tourists visiting WA. Our State‘s ability to effectively compete in the international education market is critical to diversifying and growing our local economy and creating jobs.

BOOST FOR INTERNATIONAL EDUCATION

There will be an additional $12m funding for international destination marketing. This will help increase the State’s presence in a competitive international market, attract additional tourism dollars and create jobs.

In addition, $10m has been allocated for securing more direct international flights to Perth, which will be critical if the State is to grow international tourism.  

The State Government has also provided funding to build out WA’s ecological and cultural tourism product, with more than $22m allocated for creating and managing national parks, marine parks and conservation reserves, and $3.6m for Aboriginal tourism projects.  

This is complemented by funding to enhance our local tourism offerings, including $16.2m for infrastructure improvements at Rottnest Island and $10m for new adventure trails in Collie.

TOURISM TOP-UP

BOUNTIFUL BUDGET FOR AGRICULTURE

The Government has provided significant additional expenditure for the agricultural sector. In total $131.5m has been allocated to grow its productivity and expand export markets. This includes $39.6m for a range of biosecurity, research and development and Asian export market programs.

A return to surplus in 2018-19 of $553m is a major turnaround for WA’s finances and will pave the way for future investment in infrastructure, hospitals and schools.

RICK NEWNHAM

CCIWA CHIEF ECONOMIST

The GST deal championed by CCIWA has saved WA’s GST share – resulting in a $5 billion windfall as the 70 cent GST floor kicks in.

Ensuring that WA’s roads and rail are meeting the State’s increasing traffic demands doesn’t just benefit West Australians travelling to and from work, it is critical to business productivity which supports economic growth.

The Government has missed a golden opportunity to support small businesses to create new jobs by maintaining the highest jobs tax in the country.

Additional funding for international education, tourism, agriculture, defence and health research will help diversify the WA economy. 
It is critical that these activities are integrated with a broader strategy for international market development to fully leverage the Government’s efforts and deliver the greatest return on investment.

A return to surplus in 2018-19 of $553m is a major turnaround for WA’s finances and will pave the way for future investment in infrastructure, hospitals and schools.

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CURB ON SPENDING IS WORKING

BUDGET SURPLUS FOR THIS YEAR

NET DEBT

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The State Government has delivered on its promise to rein in spending and start to pay down debt. Spending restraint, a CCIWA championed GST deal and an iron ore royalties windfall have resulted in the first surplus in five years of $553 million and a $6.8 billion reduction in peak net debt since the Government’s first Budget.

CCIWA congratulates the State Government for its commitment to rein in expenditure growth. While the Government has benefited from surging iron ore prices and a GST floor that will contribute an additional $2.5 billion in GST over the forward estimates, this surplus would not have been possible without the Premier and Treasurer’s commitment to spending restraint.

OUR VERDICT

GST & Royalties

The GST deal championed by CCIWA has saved WA’s GST share – resulting in a $5 billion windfall as the 70 cent GST floor kicks in.

RICK NEWNHAM

CCIWA CHIEF ECONOMIST

STATE BUDGET ANALYSIS 2019

GOVERNMENT’S HARD WORK PAYS OFF BUT NO RELIEF FOR STRUGGLING SMALL BUSINESSES

INFRASTRUCTURE TOPS THE LIST FOR JOB CREATION

The Government has announced range of programs across tourism, defense, international education, agriculture, housing and health research sectors in order to stimulate job creation. However, its infrastructure plans, especially in road and rail infrastructure, will play the dominant role if it is to deliver on its 150,000 new jobs target by 2023-24.

This program has significantly expanded, with the State Government benefitting from Commonwealth funding in its recent Budget.

FUTURE HEALTH RESEARCH & INNOVATION FUND

$52m has been provided to the Future Health Research and Innovation Fund to build out WA’s untapped potential in health research and innovation. With funding not to commence until 2020-21, it is important that a clear strategy is articulated for the Fund to ensure the strongest possible return on investment.

BUILDING DEFENCE INDUSTRY CAPABILITY

The Government has provided $3m for Defence West to establish a Defence Advisory Forum which will bolster efforts to grow the WA defence industry, support the State’s economic diversification and help WA SMEs enhance their capability. This follows a $2.4m investment in a new shipbuilding and defence training campus in Henderson.

RICK NEWNHAM

CCIWA CHIEF ECONOMIST

SPENDING RESTRAINT

Government spending restraint is paying dividends for the Budget and helping to reduce net debt.  

Spending growth is expected to rise to 3.4 per cent in 2018-19 and slow to 1.5 per cent by 2019-20. The average of expenses growth over the forward estimates is expected to be 1.3 per cent.    

A focus on reducing spending growth will take the Budget toward pre-boom levels and accelerate future operating surpluses. This is essential to reducing the State’s debt, keeping taxes low and helping the economy to recover.