The State Government’s budget surplus in the current financial year could be as high as last year’s unexpectedly large $793 million surplus, according to the Chamber of Commerce and Industry of WA.
The State Government’s budget surplus in the current financial year could be as high as last year’s unexpectedly large $793 million surplus, according to the Chamber of Commerce and Industry of WA.
The Government’s 2004-05 budget, released in May, forecast a surplus of $243 million.
However, CCI chief executive and former under treasurer John Langoulant expects State revenue will be at least $500 million higher than forecast. This gives the State Government substantial scope for tax cuts.
The main reason for the higher surplus is the strength in the oil price.
The budget papers assumed a crude oil price of $US27 per barrel, yet the market price has been above $US40 for most of the financial year and this week traded as high as $US55 per barrel.
This provides a huge windfall, since each $US1 increase in the oil price adds $14.5 million to annual petroleum royalties.
The buoyant conditions in the economy, and in the housing sector in particular, will also contribute to revenue growth from conveyance duty and payroll tax.
Mr Langoulant said the exchange rate had mostly been two to three cents below the budget assumption of US76 cents, which would lift royalty income. Apart from growth in tax revenue and royalties, the 2004-05 budget is underpinned by an increase in Western Australia’s share of GST revenue, reflecting revised distribution of Commonwealth grants.
Mr Langoulant expects the strength of the national economy means WA’s share of GST revenue will be about $125 million higher than originally expected.
Looking back to last year, the surprisingly large 2003-04 budget surplus was a result of the booming economy, strong property market and rising commodity prices, all of which fed into higher revenue.
The State’s tax revenue jumped 21.7 per cent last year to $4.1 billion.
The two biggest contributors to this total were conveyance duty, up 45 per cent to $1.2 billion, and payroll tax, up 13 per cent to $1.1 billion. Total revenue (including Commonwealth grants and royalties) jumped 8.3 per cent to $12.7 billion.
Opposition leader Colin Barnett says the Gallop Government has made Western Australia the second highest taxing State in the country.
Total tax increases under the current government add up to $1 billion, according to Mr Barnett.
He has committed to share the natural growth in tax revenues through a progressive reduction in rates of stamp duty, payroll tax and land tax.
Specific proposals include exempting owner-occupied family homes owned by a company or trust from land tax, and capping annual land tax increases to protect property owners from “excessive” hikes.
Mr Barnett is planning to release further details of his tax package in coming months.
Treasurer Eric Ripper argues that the Liberal and National parties are making tax and spending promises the State cannot afford.
He challenged the Opposition to reveal the full cost of its promises, which he suggested could run into the billions of dollars.
“The unprecedented growth in the State economy over the last few years cannot go on forever. Any financial plan has to balance spending commitments with likely revenue based on the economic outlook,” Mr Ripper said.
Snapshot
- Tony Ince, Fehily Loaring: “Payroll tax should be abolished. It is clearly a tax on employment. There should also be a much greater degree of certainty in the application of payroll tax.”
- Tony Brennan, Delta Capital: “I would focus on two things: cut the insidious payroll tax, and reduce stamp duty on first home buyers, as I have a concern about their ability to enter the ever rising property market.”
- John Schaffer, Schaffer Corporation: “Conveyance duty should be much lower, around three to four per cent. As property values increase the Government’s take increases. Currently, they get it both ways.”
- Greg Wall, StateWest Credit Society: “There are two tax reductions that would have the greatest impact. The first is payroll tax, which is effectively a tax on employment. The Government has also ridden on the back of the property market growth and extracted excessive tax from the transfer of land.”
- Michael McLure, UWA Business School: “The top priority should be to reduce conveyance duty rates. The main problem with conveyance duty is that it taxes the mobility of capital and, as such, reduces productivity.”
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