S&P praises strong budget outcome

Ratings agency S&P Global Ratings has expressed surprise that the state budget will dip into a cash deficit this year but otherwise was effusive about the health of WA’s finances.

“The state of Western Australia's economy marches on, and so do its operating surpluses,” S&P said in a research note today.

“Very strong fiscal outcomes and modest debt levels support the 'AAA' credit rating we have on Western Australia, which is highest of all Australian states and territories.”

It added that WA's fiscal metrics are stronger than nearly all domestic and global peers.

S&P's research note came after WA treasurer Rita Saffioti handed down the 2024-25 budget this afternoon.

The budget forecasts an operating surplus of $3.2 billion in the year to June 2024 but a cash deficit of $900 million.

“This is contrary to our previous expectations of a small cash surplus at the non-financial public sector level,” S&P said.

The latter figure is after adding in capital investments by state-owned utilities like Synergy, Western Power and the Water Corporation.

While WA is expected to record operating surpluses for the next four years, the cash deficit increases to a peak of $3.9 billion in FY26 and state debt also increases.

S&P described the forecast increase in debt as “modest” and was otherwise positive about the state’s finances.

“While today's budget slightly revised down Western Australia's strong operating margins, we believe there is substantial upside to these forecasts,” it said.

“Iron ore, Western Australia's most important commodity royalty earner, is currently fetching about US$115 per tonne – much more than the US$75 per tonne the government expects it to average next year.

“Stronger royalties would more than offset the government's modest cost-of-living package, housing investment, and increased capital expenditure budget.

“This upside is likely to limit growth in Western Australia's debt.”

The government expects net debt to increase from $28.6 billion at June 2024 to $40.9 billion as at June 2028.

S&P focuses instead on the public sector’s gross debt, which is expected to increase from $49 billion to $55 billion over the same period.

“If iron ore prices remain around US$115 per tonne gross debt could plateau or even fall,” S&P said.

It concluded by endorsing the state’s AAA credit rating.

“The state's robust financial management, very high-income economy, and exceptional liquidity also support the rating,” it said.

“These strengths help counterbalance risks associated with the state's dependence on the resources sector.”