The numbers that matter: State Budget 2019-20

WA Treasurer Ben Wyatt has delivered his much-anticipated third Budget, announcing the first surplus for the state in five years.

The Budget, the penultimate before the 2021 State Election, goes further than Premier Mark McGowan flagged in December, with an earlier-than-anticipated surplus for 2018-19 of $533 million  – a figure that is expected to grow past the $1 billion mark in the next financial year. Driving factors include an ongoing focus on expenditure restraint, an expected pick-up in economic activity and surging revenue driven by higher-than-forecast royalties and a $7 billion GST boost.

Further substantial surpluses are predicted across the entire forward estimates period, with forecasts for 2019-20 of $1.5 billion and 2020-21 of more than $2 billion.

The Budget sets out an improved outlook for WA, with a significant improvement in forecasts and some light at the end of the debt tunnel – with net debt reduced by $4.1 billion, now peaking at $37 billion in 2020-21.  It is notable that Western Australia is the only state forecasting net debt to peak over the forward estimates period.

There are positive signs for the WA economy, which will be welcomed on many fronts. There is better-than-expected overall revenue due to improved income from royalties (up $2.7 billion) and upward revisions to the forecast iron ore price (particularly in 2018-19 and 2019-20). Households will experience a lower-than-expected increase in utility charges, averaging around 2 per cent.

Our Government Relations team has examined the budget papers to bring you the key elements that matter and highlight what’s hiding in the details.

The Budget surplus is based on a range of key assumptions and forecasts. Treasurer Ben Wyatt is relying on growing business investment, which will see its first significant lift in seven years up to $43 billion by 2022-23, from new and replacement iron ore projects and new lithium projects. A tightening in access to credit across Australia, coupled with declining house prices, has impacted household consumption and dwelling investment.

• Gross State Product is expected to pick up to 5 per cent in 2019-20, from moderate 2 per cent levels in 2018-19
• Employment is expected to grow by 1.75 per cent in 2019-20 and forecast to reach 2.25 per cent by 2022-23
• The unemployment rate is higher than anticipated last year at 6 per cent in 2019-20. It is forecast to gradually fall to 5.25 per cent by 2022-23.
• Wage price index growth remains subdued at 1.75 per cent in 2018-19, up from 1.5 per cent last year but forecast to grow to 3.25 per cent by 2022-23.
• State population growth is expected to remain subdued at 3 per cent in 2019-20.
• Business investment is expected to decline by 10 per cent 2018-19 but grow by 6 per cent in 2019-20.
• The iron ore price of $US65.6/tonne is up slightly from last year’s $US61.9/tonne.
• Iron ore volumes estimates have been revised down for 2018-19 from 828 million dry tonnes to 799 million dry tonnes, with growth over the forwards to 858 million dry tonnes.

For West Australians looking to enter the housing market, the Budget contains a targeted housing stimulus with temporary changes to Keystart as the statement piece. The changes, designed to boost the housing construction sector and create local jobs, will relax loan eligibility criteria for Western Australians looking to buy or build a home in WA and provide assistance for those experiencing difficulty in securing finance with banks.

WA households did not receive a freeze on electricity and other charges following significant increases in the 2018-19 Budget to power, water and vehicle registration but increases have been kept to the rate of inflation. WA families face a power increase of 1.75 per cent and water increase of around 2.5 per cent from 1 July.

Despite pressure from some unions, Mr Wyatt has committed to the public sector wages policy cap for the full four years, as planned.

Record sales from the resources sector in 2018-19 helped contribute to stronger economic condition, recording a 17 per cent increase on the previous year to $127.4 billion. Revenue from sales also benefitted from a higher $US and stronger commodity prices.

Royalty income from the resources sector is forecast to grow to $6.375 billion in 2019-20, up from $6.1 billion, due to increased exports of lithium, iron ore and other minerals.

The government has applied conservative forecasts for iron ore prices in 2019-20 of $US66 per tonne, well below the current price of around $US94 per tonne – inflated from supply disruptions in Brazil.

Production from WA’s existing iron mines fell from 825 million tonnes in 2017-18 to 799Mt in 2018-19. Production will increase again over the next four years from new projects, which will replace declining reserves in existing mines. Production is forecast to reach 858Mt by 2022-23.

Lithium-spodumene concentrate production is forecast to increase from 1.2Mt in 2017-18 to 4.6Mt by 2022-23 with the opening of new mines and increased production from existing mines.

There are also a number of projects moving up the value chain to produce lithium hydroxide – the first shipments from Tianqi’s project in Kwinana are expected in the second half of 2019.

LNG is expected to play an increasingly important role globally as countries such as China move away from coal to using natural gas as a cleaner fuel. As a result, the McGowan government has invested $10 million over 10 years towards a world first micro-scale LNG plant at Kwinana

METRONET again plays a central role in this year’s transport announcements, as a flagship of the McGowan government policy agenda. The 2019-20 budget sees $4.1 billion allocated over the next four years.

The Thornlie-Cockburn Link and Yanchep Rail Extension are expected to go to tender this year, and a contract announcement on the railcar assembly and commissioning facility in Bellevue is also expected.

Another centrepiece budget announcement is an additional $1.3 billion on road infrastructure, bringing total investment to $4.2 billion over the four-year forward estimates – providing great opportunities for civil construction companies, and a forecast 28,000 jobs.

Specific projects identified include new grade-separated interchanges and flyovers on the Tonkin, Leach and Roe Highways, extensions to the South Western Highway and completion of the duplication of Reid Highway.

The total education budget for 2019-20 is $5.2 billion, a modest increase up from $5.1 billion in 2018-19.

A new Employer Incentive Scheme will provide financial assistance to businesses taking on a new apprentice or new entrant trainee.  Effective from July 2019, businesses will receive a base payment of up to $8500 for businesses employing an apprentice or trainee.

A total of $182.4 million has been allocated for new schemes and training subsidies, including more than $45 million for regional Western Australia.

In addition, $452.8 million has been allocated for school construction and upgrades, including new primary schools in Brabham, Southern River, Harrisdale, Baldivis and Yanchep and major upgrades at John Forrest Secondary College and Mt Lawley Senior High School.

Other areas of interest include:

• the Investing in Science program is continuing with $3 million allocated to convert 51 primary school classrooms to science laboratories
• $4.5 million has been allocated to StudyPerth’s International Education Action Plan, supporting the Government’s plan to attract an additional 16,000 international student to Perth students by 2022.
• $1.05 million has been committed for alcohol and other drug education programs in schools with a focus on at-risk students.

Total health spend in 2019-20 is budgeted at $9.1 billion, up from $8.81 billion in 2018-19.

With euthanasia laws set to be introduced into State Parliament later this year, a package of palliative care initiatives has featured today. A total of $41 million has been allocated to services supporting people with life-limiting or terminal conditions, including facilities in Port Hedland and Carnarvon.

Another election commitment featured in today’s budget is $42.5 million allocated to cross-government “Methamphetamine Action Plan (MAP)” initiatives. Key features include a 10-bed crisis centre in Midland, a comprehensive alcohol and other drug youth service in the Kimberley and alcohol and other drug training for frontline workers.

Major redevelopments at hospitals across the state will continue including Joondalup Health Campus ($161 million), Royal Perth Hospital ($23 million), Fremantle Hospital ($15 million) and Bunbury Hospital ($11 million).

Other areas of interest include:

• $52 million for a Future Health Research and Innovation Fund, to provide a secure source of funding for health and medical research, innovation and commercialisation;
• $26.4 million towards Sustainable Health Review projects, including $3.3 million to plan for a new women’s hospital co-located at the QEII site in Nedlands;
• $13 million to construct a facility to house a linear accelerator at Albany Health Campus, enabling cancer patients to receive essential radiotherapy closer to home; and
• $6 million to purchase and install an MRI scanner at the Kalgoorlie Health Campus.

The budget has a dedicated focus on developing strong regional development through investments in infrastructure and tourism to boost employment opportunities. Key budget allocations include $12 million for Tourism WA to promote the state internationally, $4.2 billion in Royalties for Regions funding and a $5.6 billion injected into regional infrastructure over the next four year period – supporting the McGowan government towards its target of creating 150,000 jobs.

Specifically, $2 billion has been set aside for regional road projects, such as the $852 million Bunbury Outer Ring Road. Furthermore, employers in regional WA will be eligible to access the $45 million dedicated to training for apprentices and trainees as part of the $182.4 million Emloyer Incentive Scheme.

Ports at Bunbury, Broome, Esperance and Geraldton will also receive $25.3 million to facilitate WA’s trade-based economy. This trade focus underpins the budgets distribution of $131.5 million toward bolstering West Australian agriculture through growing export markets and generating long-term jobs. This investment focuses on areas such as Asian Market Success and Grain Research and Development initiatives.

As expected, Collie received a healthy $60million economic boost via the Collie Industry Attraction and Development Fund. This investment áims to establish the town as a leading adventure and mountain bike destination and the base for a new Department of Fire and Emergency Services facility.

Canning’s Purple’s Government Relations team members are experts at engaging with politicians and government departments – if you need help, contact one of the team.

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