McGowan invests heavily in health, infrastructure, diversification, and relief for WA families

Premier and Treasurer Mark McGowan has delivered another bumper budget, with a $5.7 billion surplus facilitating record healthcare investment and a one-off cost of living boost for Western Australians.

But the real headline for any WA budget is always iron ore – and that has meant good news in the past couple of years for the McGowan Government.

Of the State’s $38.428 billion total forecast revenue for the upcoming 2022-23 financial year, revenue from iron ore royalties accounts for $5.645 billion.

However, compared to the financial year about to end, this represents a significant decline in iron ore’s relative contribution to the bottom line.

The estimated actual result for 2021-22 was a whopping $10.290 billion, or almost a quarter of the State’s total revenue of $41.890 billion.

This historic windfall was largely a function of commodity markets and global supply chain anomalies, but it no doubt accounts for the current surplus and allows for the generosity of budget initiatives announced this week.

While this budget succeeds in spreading wealth evenly across the entire State to renew public infrastructure, attract future investment and bolster critical service delivery for struggling WA families, the reliance on iron ore revenue remains a notable risk.

Sensible price forecasts for iron ore over the forward estimates and the McGowan Government’s appetite for facilitating the development of the next generation of in-demand commodities demonstrates a keen appreciation of this risk.

However, geopolitical tensions in the region, highlighted by the Commonwealth Government’s recent handling of the Solomon Islands security pact with China, as well as the general lack of diplomatic engagement with our major customer, leave the Premier and the State in an uneasy position in the medium term.

If estimates hold, WA will close out 2021-22 with a $5.676 billion surplus. It has also forecast surpluses across the forward estimates: 2022-23, $1.592 billion; 2023-24, $3.541 billion; 2024-25, $2.760 billion; and 20256-26, $3.007 billion.

The Budget assumes an average 2021-22 iron ore price of $US139.5, reducing to $US77.5 per tonne for 2022-23, then dropping back to its longer-term average of $US66 per tonne from November 2022.

Total public sector net debt is expected to fall for a third consecutive year to $29.9 billion at 30 June 2022 – the first time since 2015 that net debt has been below $30 billion.

Net debt is forecast to rise slightly over the forward estimates period to underwrite record infrastructure investment, which the Treasurer may hope isn’t realised if iron ore prices hold above $US66 per tonne and export volumes remain stable as predicted.

However, as a share of Gross State Product, net debt is forecast to peak at 9.9% in 2024-25, before declining to 9.5% in 2025-26.

Importantly for business confidence, Treasury is forecasting the State’s domestic economy to grow by an estimated 5.25% in 2021-22 – the strongest rate of growth in a decade – and maintain that momentum into 2022-23, with further growth of 4% forecast.

This strong economic growth is expected to generate around 68,700 jobs in 2021-22 and a further 28,900 jobs in 2022-23, while the unemployment rate is forecast to average 3.75% from 2022-23 – the lowest rate since 2008-09.

The tight labour market is also expected to eventually flow through to a lift in wages growth, from an estimated 2% in 2021-22 to 2.75% in 2022-23.

The key commitments of the 2022-23 budget the Treasurer wants you to mark him on:

Cost of living: $400 Household Electricity Credit to all households from July 2022
Heath: Record $2.5 billion investment in the State’s health and mental health systems
COVID: A further $1.6 billion to respond to COVID-19
Economic diversification: A further $1.3 billion investment in the tourism, defence and international education sectors (among others)
Climate action: Boost of $500 million for the Climate Action Fund ($1.25 billion total investment
Economic management: Pay down $1.2 billion of existing debt.

Health

COVID-19 remains the main health challenge faced by the State Government, evidenced by an additional $1.6 billion in funding for their response and recovery program. Western Australia has now funded $11.2 billion in response measures since the beginning of the pandemic.

The bulk of the new funding ($635 million) will be spent on rapid antigen tests (RAT) and running the WA Free RAT Program. A further $537 million has been allocated to health services including testing and monitoring.

As the budget was announced, case numbers in Western Australia were significantly high, so it was encouraging to see the State Government allocating funding to other monitoring and testing methods to complement the current PCR and RAT programs.

Apart from COVID-19, ambulance ramping and emergency department capacity is clearly at the top of this Government’s priorities. A $2.5 billion investment in the health sector was announced, including a $252 million Emergency Department Reform package.

New and expanded mental health services received some much-needed extra funding in this budget, with an extra $181 million allocated to the Mental Health Commission out to 2025-26. This takes the total investment in mental health, alcohol, and other drug services to $1.3 billion over the budget years, almost a 13% increase over the 2021-2022 budget.

Transport and infrastructure

A $6 billion allocation towards METRONET over the next four years highlighted infrastructure commitments in this year’s Budget, as the McGowan Government looks to achieve several key milestones for its signature policy in 2022-23.

Labor anticipates that the Forrestfield-Airport Link will be up and running by around mid-year, while the first trains are also expected to roll out of the Bellevue Railcair Manufacturing and Assembly Facility for testing in the coming months.

Major construction will also start in 2022-23 on Midland Station, the Byford Rail Extension and a multi-storey car park at Greenwood Station.

The budget’s transport investments also included a $5.6 billion commitment to the State’s regional road networks, with significant funding across new projects and major upgrades already under way.

The State Government will pitch in WA’s share of funding ($500 million) for the upgrade of the Tanami Road, committed to by the Commonwealth Government in their April budget.

The upgrade of the Tanami Road is expected to unlock the economic potential of the Kimberley region by encouraging regional tourism and enabling access for new energy, minerals, and groundwater resource exploration.

Other new regional projects receiving funding included the $250 million first stages of the Pinjarra Heavy Haulage Deviation, $120 million worth of upgrades of roads from Moorine Rock to Mount Holland to support the Covalent lithium mine, while $50 million was allocated towards adding overtaking lanes on the Great Northern Highway between Port Hedland and Newman.

A further $25 million was allocated to the Tonkin Highway interchange, complementing $50 million in funding from the Commonwealth Government and $25 million in private investment for the project.

While this funding will help Ellenbrook cope with the growing population, it is the same areas which continue to be showered with State and Commonwealth infrastructure spending while others continue to struggle with congestion and safety issues due to aging infrastructure which is no longer fit for purpose.

In what could be deemed an environmental policy as much as a Transport policy, the Budget earmarked almost $60 million for a Clean Energy Car Fund. The fund allocates $36.5 million for rebates on the purchase of electric or hydrogen fuel cell vehicles as well as $22.6 million to expand the electric vehicle charging infrastructure across Western Australia.

The State Government also announced an intention to introduce a road user charge for zero and low emission light vehicles, based on distance travelled, commencing mid-2027. Revenue from this charge will go towards the maintenance and construction of Western Australian roads.

Education and training

The McGowan Government has increased education funding to deliver a total of just less than $6 billion. This investment will be utilised for new schools and facilities, additional learning needs, education support and pandemic relief for State school students.

The Education Adjustment Allocation will expand in 2023 in order provide additional learning support to develop students’ literacy and numeracy skills. Over the next four years, State schools will receive $31.9 million in extra funding.

The State’s international education sector will receive a boost of $41 million in support, along with $2.4 million to be invested into Regional TAFE International Student Strategy which responds directly to feedback from the 10 Regional Skills Summits held across the State.

Investing into skills and training will continue with $76.5 million in the Budget for the following initiatives:

Additional $38.4 million in funding for Lower fees, local skills initiatives
$14.3 million in support of training the in-demand construction
$11 million for the defence industry’s workforce
$5.5 million for mature-aged jobseekers and ex-offenders into the workplace
Total of $4.9 million in support for Collie workforce transition
$2.4 million to entice international students to the regions.

Housing

An additional $408 million will be invested towards housing and homelessness to take the total investment from the last two Budgets to $1.3 billion.

There will be the introduction of a 50 per cent land tax concession for new build-to-rent developments from July 1, 2023. Th tax relief will develop the build-to-rent industry within the State.

Other housing initiatives within the budget:

Stamp duty rebate of up to 100 per cent for eligible off-the-plan apartment purchases
New Keystart pilot product to support medium and high density living around transport hubs
$19.1 million for the development of new residential land in key regional locations
The removal of the 2 per cent surcharge on assessed land tax liability when paid over three instalments
Expansion of the Building Bonus grant applicant timeframe.

Household fees and charges

The cost of living has not been ignored, the McGowan Government announced a 3.8 per cent reduction in household fees and charges in 2022-23.

The Government will provide all Western Australian households a $400 Household Electricity Credit, at a cost of $445 million.

Electricity and water charges will rise by 2.5 per cent, Transperth and Transwa standard fares will rise by 2 per cent and the average Emergency Services Levy will increase by 5 per cent.

Motor vehicle-related charges will also increase by a total of 3.4 per cent for the average household.

Over the past four years, the McGowan Government has delivered more than $2.1 billion to provide cost of living support in an attempt to restrain increases in household fees and charges.

Stoking the engine room

Resources

Unsurprisingly, WA’s resources sector underpinned the State’s strong economic performance, with $230 billion in sales and WA exports accounting for more than half of the nation’s total.

The state government collected $11 billion in royalties in 2020-21, including grants from the North West Shelf.

New projects in the development pipeline were collectively valued at $127 billion as at September last year, while the number of direct employees in the resources sector was 153,000 in 2020-21, up from 136,000 the previous year.

Approvals will be sped up through a new Department of Mines, Industry Regulation and Safety (DMIRS) initiative over the next four years, with a new strategy put in place to digitalise processes and add additional government resources.

Mining and agriculture in the Mid West received a solid boost, with $332 million allocated to expand the Port of Geraldton, while $52 million was committed to build a supply base and chemical processing storage facility to support oil and gas operations in the Browse Basin.

The state government also recognised the enormous potential of developing a sulphate of potash industry to diversify our commodity exports, establishing a $10 million royalty rebate scheme which will reimburse potash producers 50% of their royalty

The industry has enormous potential to create jobs and regional economic activity by suppling fertiliser to the global horticultural sector.

Agrimin’s Mackay Potash Project, for example, is expected to deliver more than $1.6 billion in net public benefits over its 40-year mine life.

Energy

The highlight for consumers in this year’s budget is undoubtedly the Household Electricity Credit – a $400 one-off payment to subsidise home power bills.

A new Whole of System Plan for the South West Interconnected System (SWIS) will be commenced in 2022-23, while EPWA will make changes to the Market Rules to improve power system security and facilitate private generators and battery storage.

DMIRS will support the WA Renewable Hydrogen Strategy, which aims to have 10% hydrogen blended into the gas networks by 2030, with the Energy Transformation Strategy to support battery storage systems in consumer installations, microgrids and stand-alone power systems;

Synergy will spend $51 million to complete construction of the 200MWh “Big Battery” at Kwinana, while also partnering with Horizon Power to complete Australia’s longest electric vehicle fast charging Highway from Perth to Kununurra.

There will also be charging stations to the South Australian border.

Western Power is also expected to finalise its Access Arrangement (AA5) which governs connections and charges for using its grids, which will run from 1 July 2022 to 30 June 2027.

Climate action

Environmental policies were also big ticket items, with $652 million allocated to respond to climate change and protect the environment and $500 million allocated to the Climate Action Fund, taking the total climate spend to $1.25 billion.

— additional contributions from Cam Fraser, Richard Harris and Bree Liddell