Budget surplus size surprise

The Gallop Government has reported a surprisingly large $1.24 billion budget surplus for 2004-05, adding to pressure on Treasurer Eric Ripper to deliver major tax cuts.

Also releasing its final results this week was Western Power, which as expected reported a sharp fall in net profit.

The State Government’s massive budget surplus was fuelled by rapid growth in revenue and reflected the boom conditions in the WA economy.

When the Government originally released its 2004-05 budget in May last year, it forecast a surplus of $243 million, but it has been forced to repeatedly revise that figure to reflect strong growth in revenue.

The final outcome for 2004-05 set a new record and followed the $799 million budget surplus in 2003-04.

Total revenue grew by 11.3 per cent last year to $14.2 billion, helped by the sharp rise in oil prices, which boosted petroleum royalties.

Big increases in minerals production and commodity prices lifted mining royalties, while stronger-than-expected activity in the property market lifted conveyance duty.

The state has also benefited from higher GST revenue and an increase in Commonwealth grants.

Total spending increased to about $12.9 billion, an increase of 8.6 per cent.

By historical standards this represented rapid growth, though the growth rate was a little slower than forecast in May this year.

The Government has used its big surpluses to reduce the level of public sector net debt, which dropped to $4 billion at June 30.

Public sector debt had originally been expected to blow out to $5.9 billion.

The Government also delivered tax cuts – mainly to payroll tax and conveyance duty – worth $233 million, though the final budget outcome showed there was plenty of room for more cuts.

Mr Ripper has signalled the prospect of tax cuts after establishing a formal review of state taxes earlier this year.

The need for tax reductions was underscored by the CCI BankWest survey of business opinion released this month.

It found that businesses’ number one priority for tax reform was to reduce the level of taxation, followed by reducing the complexity of the tax system.

When asked to nominate taxes for reduction, most selected payroll tax, followed by property taxes such as land tax and conveyance duty.

Meanwhile, Western Power has reported a 14.5 per cent fall in net profit to $206 million for the 2004-05 financial year.

The fall in profit was foreshadowed when the Government released its 2004-05 budget last year.

Managing director Tony Iannello said the lower profit was an excellent result, given the challenging market conditions and the focus on “keeping the lights on”.

He attributed the fall mainly to spending on the electricity network to improve reliability and measures taken to increase generation capacity.

The corporation was also affected by increased consumption of more expensive liquid fuel due to a shortage of gas capacity and the unavailability of coal plant.

“We can expect Western Power’s net profit to continue to fall in 2005-06 as the impact of competition becomes more significant with new generating companies entering the energy market,” Mr Iannello said.

The corporation will also be affected by higher fuel prices and greater expenditure on its network.

Western Power is unlikely to report again in its current form, with the Government pursuing plans to break the corporation next April into four separate businesses covering its retail, generation, distribution and regional divisions.