WA deficit to be $2.7bn

Western Australian government net debt is forecast to peak at $36.3 billion in 2017-18, but Treasurer Mike Nahan is confident that asset sales and a lagged rebound in GST revenue will help pay it back.

Unveiling the budget today, Dr Nahan forecast a $2.7 billion operating deficit for 2015-16, following an anticipated deficit for the current financial year of $788 million.

This year's figure included the once-off $500 million infrastructure payment from Canberra.

The budget won't return to operating surplus until 2017-18, at $874 million, while state net debt is expected to rocket from around $25 billion to peak at more than $35 billion at the end of that year.

To fund the return to surplus, the government is relying on the belated upswing in GST revenue and capping growth in public sector recurrent spending.

The treasurer is hoping that forecast strong surpluses and a second tranche of the asset sales program, expected to raise $3 billion-$5 billion, will ensure that debt comes under control in the budget's out years.

Exports up, demand down

Export growth will be 10 per cent in the coming financial year as Chevron's Gorgon and other projects switch on, helping drive gross state product growth of 2 per cent.

GSP growth at that level is down dramatically compared with the 5.9 per cent per annum growth recorded on average for the past three years, yet it will recover to around 3.5 per cent in 2016-17.

That means it should be keeping pace roughly with the national rate.

However, state final demand, which strips out exports and imports, will fall again this year on the back of reduced business investment and cautious consumer spending.

After contracting 2.2 per cent in 2014-15, SFD will fall 2.5 per cent in 2015-16 and a further 1.25 per cent in 2016-17.

Concordantly, unemployment will head northwards towards 6.25 per cent in the next year.

There was good news as employment growth is predicted to continue above the national pace as population growth drives more people into the labour market. 

The Big Spend

The government has opted to continue with its massive asset investment program, around $24.1 billion over the four-year estimates period.

Dr Nahan said it was fortuitous that the program had been planned, as it would create around 93,000 jobs and drive employment, but it was not intended as a Keynesian stimulus.

He warned that the experience of Kevin Rudd had showed unplanned 'shovel-ready' programs could generally not be rolled out fast enough to have a positive impact.

Instead, the government would book around $1 billion of savings in the forward estimates period through lower capital costs.

The years of profligate recurrent spending seem to be drawing to an end, however, with Dr Nahan forecasting a decline in real expenditure per capita.

In nominal terms, it is projected to be 2.5 per cent over the forward estimates period, well down on the 6.8 per cent across the Liberal government's first six budgets.

Slow growth of public sector wages, which make up around half of the recurrent spending bill, will do a good portion of the work, with the Treasurer adding that the new wages policy had been successful.