Strong economy underpins budget

A STRONG economy, a buoyant property market and booming mineral production have helped the State Government combine increased spending with prudent financial management.

Last week’s State Budget revealed a jump in government spending of 4.7 per cent in 2003-04, and a 3.5 per cent rise forecast next financial year.

The blow-out in spending last year meant the State Government broke one of its own fiscal targets – to ensure spending does not rise faster than the combined growth of the population and inflation.

While spending rose rapidly, so too did revenue, mainly because of surging conveyance duty and payroll tax and higher GST revenue.

As a result, last year’s budget surplus of $207 million was well above the original forecast of $83 million.

Looking ahead to next financial year, the Government once again anticipates strong revenue growth, notwithstanding an expected slowdown in the property market and the introduction of some tax concessions.

The key drivers of revenue growth in 2004-05 will be Western Australia’s increased share of national GST collections, following negotiation of a new deal with Canberra, and surging mining royalties.

Most notably, iron ore royalties are forecast to grow from $312 million this year to $399 million in 2004-05 and $468 million in 2007-08.

This reflects recent and planned increases in iron ore production volumes (and prices) to meet soaring demand from China.

On the spending side, growth in recurrent spending is focused on politically sensitive areas such as health, education and police.

Treasurer Eric Ripper said the Government was counting on efficiency savings to keep its spending under control.

It aims to save $100 million each year by moving to centralised purchasing and $40 million each year by establishing five corporate services units to provide payroll, accounts and other services for all departments.

Mr Ripper said these changes would deliver modest gains this year, with the full benefits to flow in 2005-06.

He added that the budgeted savings were more conservative than the $170 million of savings estimated by consulting firm Deloitte.

Another feature of the budget is the forecast 7.6 per cent growth in capital works to a record $3.9 billion.

The big winners include public transport, health and Western Power.

The Government will spend $410 million upgrading and expanding the metropolitan rail system, mostly on the southern suburbs railway.

Western Power’s capital works budget is up 24 per cent to $418 million, with about two thirds of this to be spent improving the reliability of the transmission and distribution systems.

Main Roads did not fare very well, with spending to increase just 3.3 per cent, while spending on water and ports will decline following completion of major projects.

The net effect of the Government’s budget measures is a sharp increase in public sector debt, up 16 per cent to $5.9 billion.

Mr Ripper insisted this was manageable, a view backed up by ratings agency Standard & Poor’s.

“The important thing is that the State is living within its commitments in its medium-term fiscal strategy, including the commitment to keep the State’s net debt below 47 per cent of revenue,” S&P credit analyst Brendan Flynn said.

“The Government has not left itself much of a buffer before it breaches this limit.

“However, Standard & Poor’s remains confident that the Government would have the time and – importantly – the inclination to take corrective action, if required.”

Chamber of Commerce and Industry acting chief executive Ross McLean said there was little in the budget for business.

“It has been a missed opportunity, while economic growth has been strong, to tackle the wider tax issues and develop a better and fairer state taxation system,” Mr McLean said.

“Expenditure has continued to grow beyond the targets the Government set itself.

“Year after year for the past decade, both the Gallop and Court governments let taxpayers down with their poor discipline over spending.”