$200m boon to budget bottom line

Surging salary costs and sagging royalty revenue have done little to harm the state’s finance, with today’s mid-year budget review showing a minor improvement in the government's projected surplus.

New data released through the state’s mid-year budget review shows a minor increase in the government's initial FY22 budget estimates from a $1.6 billion to $1.8 billion surplus, largely courtesy of an additional $2 billion in royalties.

That came despite the average price of iron ore sinking to $87 per tonne, down from about $138/t in FY22.

General improvements in tax revenue and increased Commonwealth grants were offset by an increased public sector wages bill, which is now expected to cost the budget an additional $1.4 billion over the forward estimates.

Premier Mark McGowan was far from ebullient this afternoon, foreshadowing tough economic conditions to come as soon as next year.

“We’ve ensured that we have the financial capacity to whatever the world might throw at us in the coming years,” he said.

“At the same time, [the state government is] providing for enhanced spend in health and generous pay increases for our public sector workforce, and ensuring we have a strong capital works program going forward.”

Elsewhere, total public sector debt was revised downwards to $32.2 billion in FY26, a decrease of $1.7 billion on initial budget estimates.

That’s significantly less than projections for Victoria and New South Wales, where net debt is expected to climb to more than $120 billion before the middle of the 2020s.

Improved management of the state’s finances may yet give way to further wrangling, particularly with the Australian Nursing Federation and WA Police Union, over improved wages and conditions, with CPI growth revised upwards to 5.25 per cent this financial year.

Under Treasurer Michael Barnes however was clear about the potential impact a 5 per cent increase in salaries would have on the state budget if implemented.

“It would go straight on to our debt and drive up our interest bill,” he said.

Opposition treasury spokesperson Steve Thomas noted today’s news constituted a small improvement in the state’s finances, criticising the premier’s emphasis on downside economic risk in WA.

“While it is true that world economic growth is expected to decline, most commentators including the ratings agencies are predicting a soft landing here in WA,” he said.

He suggested the state government use increased revenue to reform payroll tax and stamp duty.