22/09/2016 - 15:28

State's debt, deficit better than anticipated

22/09/2016 - 15:28

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The state’s budget position for the 2016 financial year has come in nearly $700 million better than was initially forecast when it was released in May last year, but still in the red to the tune of $2 billion, with revenue $915 million down on the previous year.

State's debt, deficit better than anticipated
Mike Nahan says spending growth for FY2016, at 2.4 per cent, is the second best result for 20 years. Photo: Attila Csaszar

The state’s budget position for the 2016 financial year has come in nearly $700 million better than was initially forecast when it was released in May last year, but still in the red to the tune of $2 billion, with revenue $915 million down on the previous year.

Net debt was also dramatically better than the original forecast, at a level of $27.3 billion on June 30 compared with a predicted level of $31 billion, according to the Annual Report on State Finances released today.

In cash terms, including capital expenditure, the deficit was $4.7 billion compared with a predicted $5.1 billion.

The better-than-expected result was partly due to low spending growth, which came in at 2.4 per cent, much lower than the average rate of 7.7 per cent across the past decade.

That was the second best result in the past two decades, Treasurer Mike Nahan said.

Expenditure overall was $527 million lower than had been forecast.

The other side of the ledger also turned out better than anticipated for the government, with revenue $160 million above forecast.

That was driven by a slightly lower-than-expected exchange rate and a slightly better than anticipated (although still low) iron ore price

At that level, revenue was 3.3 per cent lower than the previous year, coming after a 2 per cent fall in the 12 month period before that.

There were a few other notable numbers.

State final demand contracted much more significantly than had been predicted, driven by slightly lower consumption and a very big fall in business investment.

SFD fell 4.6 per cent compared with a forecast drop of 1.25 per cent.

Unemployment was slightly lower than forecast, yet so was employment growth, with both numbers down due to a lower labour force participation rate.

Dr Nahan said an operating deficit had been unavoidable with the state’s revenue base declining.

The spending outcomes required substantial restraint, he said, with measures such as the public sector recruitment freeze, workforce renewal and tougher wages policy playing a role.

Business reaction

Chamber of Commerce and Industry of WA chief executive Deidre Willmott said spending growth was well above inflation but the reduction was a positive sign.

“Business is particularly pleased by the strong grip the treasurer has held on growth in public sector wages – growth in government salaries had been particularly unsustainable, more than doubling to $11 billion over 10 years before being addressed by the state government’s fiscal action plan in 2013-14,” Ms Willmott said.

“Had growth continued at this rate, the budget would have continued to be in an untenable position, so business welcomes the improvement in this area.

“It is important to note however that government expenses are coming off historically high levels, so further reductions will be needed to get spending back to pre-boom normal – that is, back into line with today’s wage price index and inflation.

“Today’s announcement shows government salaries have grown by 2.6 per cent in 2015-16 – which is great – but WA’s wage price index is still sitting at 1.8 per cent year on year, and inflation is even lower at just 0.5 per cent, so there is a still lot of work to be done bringing growth in government salaries back to normal.”

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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