The Barnett government is forecast to deliver a $147 million budget deficit in 2014-15, with a blowout in spending and net debt set to place significant strain on the state's finances.
The government will deliver a narrow $386 million surplus for 2013-14 but this amount is unlikely to provide a substantial buffer against external volatility, such as changes in the iron ore price.
Expenditure growth for 2013-14 is forecast to reach 8.4 per cent, with the government set to embark on a record capital works spend.
Delivering his second budget, Treasurer Troy Buswell said the government made no apologies for its spending commitments and would fight to keep the budget in the black.
However, he conceded that funding major spending commitments made during the election would add to the state's growing net debt, with credit ratings agencies having already placed the state on negative watch.
"Make no mistake: we have an issue with debt," Mr Buswell told reporters.
Net debt is forecast to reach more than $28.3 billion by 2016-17; well up from the $23.6 billion flagged in Treasury's pre-election financial projections statement.
Ratings agency Standard & Poor's left its AAA/negative rating for the state unchanged in light of the budget's "more robust" revised fiscal targets but warned the rating could be lowered in the next two years if expenditure grew beyond the budgetary estimates.
Mr Buswell said the government had made a conscious decision to take on further debt in order to deliver much-needed infrastructure to support the state's growing population.
Opposition treasury spokesman Ben Wyatt said the government had been exposed for its "shameless election dishonesty".
"This is the budget of Barnett's broken promises that will hurt Western Australian families for years to come," Mr Wyatt said.
"Under Colin Barnett and his big taxing, big spending Liberals, the debt burden will soar to $9,900 for every man, woman and child in Western Australia by 2017."
The government will claw back $6.8 billion in savings over four years through a series of tax and revenue measures.
Major transport commitments, including the $1.8 billion MAX light rail and $1.9 billion Perth airport rail link, are set to be delivered a year later than planned in 2019, with a significant component of the projects' cost left unaccounted for in the budget.
Mr Buswell said he was banking on a significant injection of private sector funding towards the projects, with plans to sound the market toward the end of this year.
The Royalties for Regions program has taken a hit, with a number of spending initiatives cut in the interest of protecting the state's finances.
The first home owners grant will be cut from $7,000 to $3,000 for buyers who wish to purchase an established home and increased to $10,000 for buyers of new homes, in a move aimed to stimulate the construction sector.
The government will also commit to a rolling review of the efficiency of government service delivery with the aim of saving a further $350 million in net debt savings over the forward estimates.
Despite forecast growth in exports as the mining sector moves into the production phase, the state is due to record softer economic growth over the forward years.
Growth in the domestic economy is set to flatline over the forward years, with unemployment forecast to rise and household consumption softer than expected.
Mr Buswell said business investment had reached its peak for the current cycle, with annual business investment growth set to decline from 9 per cent in 2013-14 to just 3.75 per cent in 2016-17.
