Export sales to China continue to underpin the State (and Federal) budgets

The State Budget landed yesterday with the headline position being a $4.2 billion surplus for the financial year immediately past and a forecast $3.3 billion dollars spare for the current period. In fact, this is the McGowan Government’s sixth straight surplus and cumulatively over the forward estimates there is forecast to be approximately $30 billion in extra income compared to current commitments.

Like the Federal Budget that landed 48 hours before it, the focus of this Budget for most households will be the cost-of-living package, but it also contains some very important commitments around energy, infrastructure, health services delivery and regional development.

A buoyant Treasurer McGowan fronted an enormous crowd of more than 1,100 punters gathered for breakfast in Perth’s Crown Ballroom to listen to his insights and highlights for the State, as we have appeared to have reached a high-water mark for the economy, which is forecast to slow slightly over the next few years.

Iron ore sales to China remains the driving force not only behind the State’s good fortune, but also the Commonwealth’s ability to forecast a surplus.

“It is terrific that we are all contributing to a new stadium in Tasmania, and probably funding the AFL team that is going there as well – it’s important to help those less fortunate than ourselves,” the Premier told people at the Business News breakfast.

“Western Australia’s contribution to national exports is technically around half of the national export performance, with 10% of the population.

“Of our exports from Western Australia, half of our exports go to China, and most of the rest go to Japan and Korea.

“Just so everyone understands the value of the China relationship, we export in value around 20 times to China what we import as a State – in other words, a massive trade surplus with China.

“This explains a lot of the budget success, also a lot of the revenue that goes to the Commonwealth that assisted them with their recent budget surplus.”

Overview and Economic Outlook

• Surplus of $4.2 billion in 2022-23, falling slightly to $3.3 billion in 2023-24;
• $3 billion package to tackle climate change with a key initiative in a large-scale battery energy storage system in Collie;
• $715 million cost of living package featuring $400 to electricity credit to every household and $826 for those most in need (in conjunction with the Commonwealth);
• Record low unemployment of 3.4% in 2022-23 rising slowly to 4.5% by 2025-26, with 218,621 jobs added since March 2017;
• State growth of 4.25% in 2022-23 on the back of $272 billion in exports, falling to 2.25% in 2023-24 and 1.75% in outyears;
• State’s population expected to grow by 2% in 2022-23 and slightly below that in outyears;
• Net State debt expected to decline for fourth year in a row to $27.9 billion as of 30 June 2023;
• Perth’s CPI is lower than other States and Territories to March 2023, which have been hit hard by large increases in electricity and gas prices; and
• Perth CPI is forecast to ease to 3.5% by June quarter 2024 from the current 5.8%.

Regional development

The 2023-24 WA Budget features a significant $11.2 billion investment in regional infrastructure as well as $4 billion in Royalties for Regions expenditure over the next four years towards initiatives that strengthen regional communities and ensure security of regional service delivery.

It continues to focus on the WA Jobs Plan, a key tenet of which is diversifying regional economies as well as creating new jobs for the future and developing a pipeline of skills in the regions.

Major initiatives include:

• $93.4 million to boost workforce participation in WA generally, including $26.9 million commitment to support employers in the construction industry to take on local apprentices;
• $4.2 million for a completion grant and safety equipment rebate for construction apprentices;
• $2.9 million work placement and travel assistance for regional nursing students;
• $2.5 million to increase travel and accommodation allowance for regional apprentices;
• $3.5 million expansion of the Heavy Vehicle Driving Operations training program to Kimberley and Pilbara;
• $3 million TAFE scholarship program for women in trade and technical occupations; and
• $1.6 million to continue practical training support for Aboriginal people.

Upgrades to Western Power’s north region network will be a key component of the broader $126 million investment in the transition of the South West Interconnected System (SWIS) to net zero.

The Mid West region, in particular, has a pipeline of highly strategic alternative energy projects emerging as part of the forecast green energy boom in Western Australia.

The investment in the north region network will allow this energy to be despatched beyond the immediate region (or simply exported), with Geraldton, currently on the edge of the SWIS, experiencing frequent difficulties with electricity reliability.

The continued record investment into regional roads and transport projects will also be music to the ears of those who regularly traverse the State’s regional network, including a further $407 million on regional road projects and initiatives being invested in this budget, bringing the total investment over the next four years to $5.3 billion.

Major State-Commonwealth regional road projects are an important part of keeping Western Australia’s economic outputs and people moving efficiently around the State. Projects funded in the 2023-24 budget include:

• $215 million for the Albany Ring Road;
• $76 million for the Port Hedland Airport Deviation;
• $115 million for the Bussell Highway Duplication;
• $55 million for the Indian Ocean Drive – Jurien Bay to Brand Highway;
• $1.35 billion for the Bunbury Outer Ring Road;
• $380 million for the Manuwarra Red Dog Highway (Stage 4);
• $120 million for the Marble Bar Road Upgrade;
• $275 million for the Great Northern Highway – Bindoon Bypass – to construct a new alignment; and
• $250 million for the Great Eastern Highway upgrades at Coates Gully between Walgoolan and Southern Cross and from Ghooli to Benari.

Of the $542.75 million funding committed by the Australian and State Government towards sealing the 311km section of Tanami Road in Western Australia, $110 million is allocated over the next four years. Road works are planned to commence in mid-2023.

Works to seal the Outback Way also continue, with 222km of priority sections to be sealed through to 2026-27 with $150 million allocated over the next four years.

Resources

• The iron ore price is forecast to decline from $US112.3/t in 2022-23 to $US74.1/t in 2023-24 and longer term to around $US66/t.
• Iron ore volumes are forecast to increase from 861 million tonnes in 2022-23 to 890 million tonnes in the out years, compensating for the price decline
• Crude oil price is forecast to drop from $US88.2 per barrel in 2022-23 to US$69.0 per barrel in 2026-27
• The exchange rate will improve from (US cents) 67.4 in 2022-23 to 67.7 in 2023-24 and 72.3 in 2026-27.
• Geoscience initiative to support critical minerals exploration in WA – Sustainable Geoscience Investments package.
• $35 million top-up of the Industrial Land Development Fund, taking this fund to $135 million.

Climate change mitigation, environment and energy

• The centrepiece of the $3.3 billion measures to tackle climate change is an allocation of $2.3 billion to Synergy to deliver a 500 MW battery energy storage system in Collie, replacing some of the capacity of coal-fired plant due to be closed by 2029.
• This will add to the 200 MW battery in Kwinana, and Synergy will also be given $368 million to build a new wind farm at King Rocks and expand the Warradarge Wind Farm.
• $126 million will also be allocated to Western Power to begin planning for upgrading the SWIS to accommodate a huge expansion of renewable energy wanting to connect to the grid.
• Continuing the SWIS demand assessment program to enable industrial energy users to decarbonise.
• $196 million to commence works on Perth’s third desalination plant,
• $36 million for next Forest Management Plan – create dozens of new jobs to help deliver on the historic decision to end native logging in our South-West.

Transport and infrastructure

• $5.8 million to continue the successful Driving Access and Equity Program, including an additional $1.5 million contribution from Western Australia’s Road Trauma Trust Account.
• The McGowan Government has continued its progress to a cleaner, greener future with a $250 million investment towards the procurement of electric buses and infrastructure.
• METRONET funding has continued to grow with a further $1.7 billion investment, taking the total to $5.9 billion over the next four years which will include the delivery of 72 kilometres of new rail and the completion if the Morley-Ellenbrook line.
• Additional $2.5 billion in road and rail infrastructure – jointly funded with the Commonwealth
• Additional $20.7 million towards the Regional Airfare Zone Cap Scheme.
• $175 million to continue the Regional Road Safety Program for safety treatments on roads across WA.
• Sport and art infrastructure has received a large focus in the budget with $55 million to the WACA Ground Improvement Project, $127.8 million to transform the State Hockey Centre and $97.9 million towards the Perth Concert Hall redevelopment.

Housing

• Social housing funding has received a boost with $511 million allocated in this Budget, increasing the total investment to over $2.5 billion. The new investment will include $450 million to build 700 new social housing homes and $49 million to a program designed to provide 100 supported landlord homes
• A commitment of $48 million in training initiatives will see the expansion of the residential construction workforce including an increase in the Base Employer Grant to $12,000 for apprentices, a $2,000 training completion payment for apprentices and expanding the Group Training Wages subsidy.

Health and mental health

• A key plank in the budget is spending on health, and in particular mental health, with the State Government under increasing pressure post-COVID to reduce waiting times for elective surgery and community and mental health services.
• The $2 billion increase in health expenditure in the budget includes $1.2 billion investment in public hospital infrastructure projects and $99.4 million to complete the first stage of Electronic Medical Record at Western Australian hospitals, allowing health professionals to move away from the current paper-based system of charting patient diagnosis and care
• The budget also includes the long-awaited $218.9 million in funding to expand capacity at Graylands, providing 53 new forensic mental health beds, five of which are for a child and adolescent unit, and an additional $201 million for mental health services, including a community-based acute mental health service for children and adolescents and funding for additional mental health specialists – the challenge, of course, will be the ability of service providers to find them.

Other funding includes:

• $13.4 million extended funding for one-stop family and domestic violence hubs in Mirrabooka and Kalgoorlie
• $74.9 million of new and continuing initiatives to improve emergency access
• $81.1 million to expand capacity at St John of God Public Hospital in Midland
• $28.5 million of new attraction and retention initiatives for the healthcare workforce, including HECS-HELP grants of up to $12,000 over three years to attract newly qualified nurses and midwives to work in regional WA.

Education and skills

• The State Government’s focus on addressing the gaps for children needing additional support continues into education, with $325.1 million for delivery of primary and secondary education, including increased supports for students with a disability and eligible students with an additional language or dialect.
• $38.6 million to improve the wellbeing of students through pastoral care services and student support strategies under the National Student Wellbeing Program
• New and upgraded school infrastructure is a key feature with $227 million for new and upgraded school infrastructure, almost half of which – $100 million – will be spent on major upgrades at Rockingham and Safety Bay Senior High Schools and $20.4 million investment in the redevelopment of the Roebourne District High School.
• There is a further $27.2 million for high-priority maintenance works at public schools and a $6.8 million for upgrades at Agricultural Colleges around the State.
• The skills shortage is again a focus, with a $47.6 million boost to Western Australia’s building and construction workforce to be spent on new initiatives to ramp up local training and attraction of skilled workers from overseas:
  • $26.9 million to increase the Base Employer Grant for all third and fourth-year apprentices by 20 per cent
  • $4.6 million for a one-off $2,000 completion payment to encourage more apprentices to finish their training in the building industry and for school students to learn about the diverse career options in construction
  • $2.7 million boost in resources to expedite approvals of occupational licensing
  • $11 million for targeted visa subsidies of up to $10,000 to attract up to 1,100 skilled migrants to the building and construction sector, plus an additional $2.4 million to promote skilled migration to WA and visa advisory services.