With the McGowan government’s plans for a strong budget upended, it is now focused on supporting jobs and the broader economy.
Treasurer Ben Wyatt’s fourth and last budget before March’s state election had been shaping earlier this year as a ‘walk in the park’.
A healthy surplus would be reported and some pre-election ‘sweeteners’ would be included.
The rationale? The public had absorbed some tough decisions to get the state finances back in better shape after the problems left by the previous government, and it was time to loosen the purse strings.
That was in May when the budget, in normal times, was to be delivered.
But thanks to COVID-19, these are far from normal times.
Now the budget is set for October 8 – two days after the federal government’s – in the midst of what is shaping as a national economic crisis.
And while the resources sector, reinforced by high iron ore prices, is continuing to provide healthy royalties for the state’s coffers, payroll tax and stamp duty revenues have slumped.
So, suddenly, managing the state’s finances has again become a major challenge. What a turnaround.
Seventy-five per cent of the work for the proposed May budget had been completed when the financial impact of the coronavirus hit.
There was national consensus all governments should defer their budgets for 2020-21 and focus on the immediate economic and health challenges.
In State Treasury’s mid-year financial projections statement last December, everything had been on track.
The budget surplus was tipped to almost double to $2.6 billion, state debt was declining, the economy would grow by three per cent (one per cent last year) and annual expense growth would be contained to an average 1.6 per cent over the next four years.
But Mr Wyatt told Political Perspective that while a much reduced budget surplus was still likely for 2019-20, thanks to COVID 19, the other projections had been superseded.
“Effectively, what was to be a (WA) budget of further fiscal consolidation has been turned on its head,” the treasurer said.
“And it’s (now) very much about doing what we can do to support jobs and the broader economy.
“We were looking for a spend that could really be done in two years so the recovery plan is really focused around that capital spend.
“The way we see it at the moment, calendar ‘21 is going to be a particularly tough year ... and we want to do what we can at the government level to support the economy and support jobs.”
In fact, despite the iron ore industry going gangbusters and gold production and exports being tipped to jump sharply, WA’s economy is expected to shrink by 3.1 per cent next year, leading to increased unemployment.
But Mr Wyatt pointed to an assessment of the WA outlook in April by ratings agency Moody’s, as grounds for optimism.
“Following a period of sustained fiscal discipline and debt reduction,” the agency said, “the state is able to embark on managing the uncertainty of the fiscal impacts from coronavirus from a position of relative strength.”
The treasurer said that because of the public’s cooperation, life was returning to normal faster than in other states, and WA had been the only state to record increased retail sales in the June quarter.
Shadow Treasurer Dean Nalder agreed the budget would be crucial.
He said it must support both households and business, and invest in the state’s future.
Business investment had declined in each of the past three years, wages growth had been the weakest in the country and unemployment had risen faster than the national average.
“Although global iron ore prices have remained resilient, underpinning royalty revenue, and the federal Government’s GST floor is assisting WA’s financial position, other revenue lines are expected to weaken and expenses expected to grow, potentially pushing WA back into deficit,” Mr Nalder said.
“The budget cannot be just about short-term stimulus. We must pivot the economy away from financial ruin and deliver sustainable jobs for WA.”
Certainly getting the budget settings right, which is Mr Wyatt’s immediate challenge, and avoiding a repetition of Victoria’s second wave, which might require a stroke of luck, hold the key to how the state will emerge ‘on the other side’.
Then the voters will have their say in March.