Hon Colin Barnett MEc MLA,Hon Mike Nahan BEc MS PhD MLA — $5 billion revenue hit results in deficit

Premier Colin Barnett and Treasurer Mike Nahan today released the 2014-15 Mid-year Review which includes an unprecedented $5 billion write-down in general government revenue projections since the 2014-15 Budget, including a downward revision of $1.6 billion in the current financial year.

Mr Barnett said strong growth in exports saw the Western Australian economy expand by a robust 5.5 per cent in 2013-14.

“The fundamentals of the WA economy remain strong. Our exports now account for more than 50 per cent of Australia’s merchandise exports,” he said.

However, the State’s Budget is under significant pressure, with:
a fall of more than 40 per cent in the iron ore price since the 2014-15 Budget estimates were finalised which will result in a drop of $7.1 billion in royalty revenue
sharply lower oil prices, which have fallen by around 35 per cent since Budget time
a decline in WA’s share of national GST revenue to just 37.6 per cent of the State’s population share in 2014-15 (down from 44.6 per cent in 2013-14)
early termination by the Federal Government of a number of National Partnership and other funding arrangements
moderating domestic economic conditions (following a peak in business investment in 2012-13), resulting in well below-average growth in major tax bases such as payroll tax.
“In response to these developments, the Government has moved to introduce carefully targeted new revenue and savings measures totalling $3.8 billion over four years, comprising the $2 billion package of measures announced in October 2014 and a further $1.8 billion of new measures announced in this Mid-year Review,” the Premier said.

Dr Nahan said these savings came on top of previous Government measures which had already realised $8.6 billion in savings between 2008-09 and 2013-14. Together with the new measures, total operating savings are forecast to deliver a further $13 billion to 2017-18.

The new measures comprise:
a new public sector workforce renewal policy, estimated to generate salary-related savings of $1.3 billion over the forward estimates. Under this arrangement, to apply from January 1, 2015, public sector employees leaving through resignation or retirement will be replaced with lower-cost alternatives equivalent to 60 per cent of the departing employee’s salary for most general government agencies, and 90 per cent for defined front line occupations such as police, nurses, child protection officers and teachers
changes to the payroll tax scale from July 1, 2015, estimated to generate additional revenue of $418 million to 2017-18. The changes include a 12-month deferral in the scheduled increase in the payroll tax exemption threshold (from $800,000 to $850,000) from July 1, 2016 to July 1, 2017
targeted reductions in general government agencies’ information and communications technology expenditure, estimated to generate net savings of $85 million after the establishment of a new $25 million ICT Renewal and Reform Fund.
“These measures have significantly, but not entirely, offset the downward revision to the revenue estimates since the May 2014 Budget. Unfortunately, as a result, a substantial operating deficit is now projected for 2014-15,” the Treasurer said.

“The Government has worked hard to control expenditure growth to mitigate the impact of revenue changes, which are largely beyond the Government’s control. We have made significant progress in managing our costs, particularly salary costs, with growth in the general government sector’s salaries bill in 2013-14 the lowest in 13 years.”

Limited new expenditure has been approved since the 2014-15 Budget. The major exception is approval of the $1.575 billion Perth Freight Link project, which is jointly funded with the Commonwealth. The project includes $591 million in new State funding over the period 2014-15 to 2018-19.

“While the savings measures introduced by the Government are proving successful in reining in expense growth, the seriousness of the revenue challenges means more needs to be done to restore the State’s finances to a surplus position as soon as possible,” Dr Nahan said.

“In this regard, the Government is undertaking detailed expenditure reviews of a number of agencies with a view to firming up further savings in the coming Budget; is continuing to pursue urgent reform of the GST distribution system; and is progressing with its program of announced asset and land sales.

Total public sector net debt is forecast to reach $30.9 billion by the end of the forward estimates (June 30, 2018), up $1.5 billion on the Budget-time forecast of $29.4 billion. This increase is the net result of the unprecedented $5 billion revenue write-down since the 2014-15 Budget.