18/12/2008 - 12:05

WA headed for record debt: Buswell

18/12/2008 - 12:05

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The state government has budgeted $2.4 billion for the Royalties for Regions scheme as it forecasts a net debt of nearly $17 billion in 2010/11, according to the mid-year economic review.

The state government has budgeted $2.4 billion for the Royalties for Regions scheme as it forecasts a net debt of nearly $17 billion in 2010/11, according to the mid-year economic review.

In the 122-page report, the government said it will deliver $337 million, inclusive of the $100 million extra funds announced earlier this week, towards the regions scheme for the 2009 financial year.

Overall the government plans to spend $2.4 billion over four years in the regions, which will be at the expense of cutbacks to the health and education sectors, the opposition claims.

Under the scheme, which tipped Premier Colin Barnett into power, 25 per cent of mining royalties will be allocated towards the regions.

The Barnett government will increase recurrent and capital spending by $3.9 billion, which it said will be partially offset by the falling Australian dollar which has boosted revenue by nearly $6 billion to the forward estimates.

WA is expected to reap just over $20 billion in revenue for the 2009 financial year while expenses are forecast at $18.85 billion, up from $17.97 billion forecast in the pre-election estimates.

Expense growth is projected at 12 per cent, up from the previous year's 9.9 per cent while this year's net operating balance it forecast at $1.18 billion, down from $2.5 billion.

Across the four-year forward estimates period, the cumulative operating balance has been revised down by around $5.2 billion.

The economic review also forecasts a deficit of $361 million in 2011/12, compared to a forecast surplus of $995 million in the pre-election estimates.

"As a result of this deteriorating operating outlook there is a significant deterioration in the capacity to fund the State's Capital Works Program," the report said.

"Combined with new capital spending commitments, total public sector net debt is projected to rise to $16.7 billion by the end of the forward estimates period (an increase of around $7.6 billion on the [forward] PFPS estimates)."

"This mid-year review describes a perfect storm with the combined effect of several factors leading the state towards deficit and record debt," Treasurer Troy Buswell said in a statement.

"The ... state will fall into operating deficit by 2011-12 and net debt will rise to $16.7 billion, well over the 47 per cent debt to revenue benchmark."

 

Troy Buswell's announcement is pasted below

 

Treasurer Troy Buswell has expressed alarm at the direction of State finances revealed in the 2008-09 Mid-Year Review released today.

The Treasurer said that the new Government would need to make tough decisions on recurrent expenditure and the capital works program in the next six months in order to protect the State's AAA credit rating.

"This Mid-Year Review describes a perfect storm with the combined effect of several factors leading the State towards deficit and record debt," Mr Buswell said.

"The starting point for this mess was the unsustainable 10 per cent a year expenditure growth left by the previous Labor government. Their lack of discipline and failure to address their record spending has left the State's finances with no buffer to survive harder times.

"The previous Labor government had also put a number of public sector pay deals in the bottom drawer which the new Government is now resolving.

"The State's revenues were already forecast to slow in 2008-09 on the back of a sluggish housing market and have been further hit by the global financial crisis."

The Treasurer said Western Australia's share of a diminishing national GST pool was forecast to decline to just 5.7 per cent, which represented $6billion in 'lost' revenue over the next four years relative to population share.

"The Mid Year Review also demonstrates that Liberal and National Party election commitments are being delivered and these have been incorporated in the forward estimates," he said.

"The combined impact of all of these factors is that the State will fall into operating deficit by 2011-12 and net debt will rise to $16.7billion, well over the 47 per cent debt to revenue benchmark.

"The Government is taking steps to address this deterioration in the financial outlook, and to keep our AAA credit rating. The position we potentially face in the forward years is not irretrievable but it requires the right approach here and now in order to avert it."

Corrective action would be implemented in the 2009-10 Budget following the outcome of review processes currently under way.

Mr Buswell said the independent Economic Audit Committee met for the first time in November, charged with reviewing public service levels, structure and functions.

"This committee will identify options to help significantly reform spending in the lead up to the 2009 10 Budget," he said.

"We have commenced a thorough audit of the Capital Works Program, which is examining every major project that has yet to proceed to tender to determine whether they remain a priority for the State.

"We are also aiming to achieve stronger overall control of the Capital Works Program by transferring the 'works' function from the Department of Housing and Works into the Department of Treasury and Finance."

The Mid Year Review also updates the State's economic outlook since the last projections, released in the August 2008 'Pre election Financial Projections Statement'.

It shows the State's economy is expected to fare relatively well in the short term, reflecting the relative strength of business investment and the pipeline of projects currently under way.

"However, there has been a very substantial change to the global economy in recent months and WA is not insulated from the effects," the Treasurer said.

Business investment is expected to fall in 2009 10 as current projects are completed and new projects are deferred or scaled back. Exports are expected to slow in the face of weaker global demand and lower commodity prices, and growth in household consumption and dwelling investment is also expected to be weak.

The good news for the State's workforce is that the unemployment rate is only forecast to peak at four per cent.

 

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