The numbers that matter: State Budget 2020-21

As Australia faces record levels of debt and deficit in the wake of the COVID-19 pandemic, Western Australian Treasurer Ben Wyatt today bucked the trend to post a $1.2 billion surplus in the State Budget, followed by surpluses in the range of $363 million in 2021-2022 to $1.5 billion in 2023-2024.

Buoyed by high iron ore prices, which enabled Western Australia to bank $8.4 billion in royalties in 2019/20, the coffers are well placed to support the State’s economic recovery and combat the ongoing threat of the coronavirus. The Budget assumes that Western Australia’s borders will remain closed until April 2021.

Importantly, WA is able to inject cash into the key strategic areas laid out in the McGowan Government’s $5.5 billion WA Recovery Plan. The plan is designed to stimulate economic activity, create new jobs and drive the local economy to grow by 1.25 % in 2020-21.

Budget assumptions

The Budget path to recovery is based on a range of key assumptions and forecasts. Treasurer Ben Wyatt is relying on growing business and household confidence to help create new jobs and stimulate growth.

• Gross State Product is expected to grow by a modest 1.25% in 2020-21 and remain well below the decade-average over the forwards.
• State Final Demand, which contracted by a record 6% in June 2020, will ease to 0.5% in 2020-21 due to subdued consumer spending and a projected fall in non-mining business investment.
• Household consumption fell by a record 10.6% in the June quarter 2020 but will gradually rebound from the September quarter 2020 onwards to 4% in 2021-22 as restrictions are removed.
• Business investment is expected to moderate to 0.75% in 2020-21 as further increases in resources project investment are largely offset by weakness in the non-mining sector, with firms focusing on existing operations rather than capital expansion plans.
• The unemployment rate is expected to average at 8% through 2020-21 with a decline to 6% by 2023-24.
• Wage price index growth is expected to soften to 1.5% in 2020-21 but is expected to gradually lift to 2.25% in 2023-24.
• The iron ore price is expected to settle at US$64 per tonne, down from US$96.6 per tonne as production in Brazil continues to recover and China’s stimulus spending wanes.
• Iron ore volumes are expected to continue to remain strong, with 845 million tonnes projected for 2020-21 and 878 million tonnes in 2023-24.
• Crude oil price is expected to move from $US44.6 per barrel to $US 51.1 per barrel.
• State population growth is forecast to slow to 0.8% in 2020-21 and 0.7% in 2021-22. It is expected to lift over time, reaching 1.3% by 2023-24.
• CPI (Perth) is expected to gradually lift towards the lower end of the Reserve Bank of Australia’s target range, to 1.75% in 2021-22 and 2% by 2023-24.

Household and business charges

WA households are set to be among the key winners in this year’s State Budget.

In a first for Western Australia, households will benefit from a $600 credit for electricity bills –  receivable from 1 November 2020. This follows the one-off doubling of the Energy Assistance Payment (EAP) to $610 in 2020 as part of the McGowan Government’s WA Recovery Plan.

For the first time in 15 years, the household basket of fees will also be cut, saving the average Western Australian household a total of $663.52 for 2020-21 – a 10.4% reduction. Taxpayers will enjoy a reduction in the Emergency Services Levy, drainage and wastewater charges. Electricity and water tariffs, as well as motor vehicle charges and public transport fare increases, have also been frozen for 2020-21.

The freeze to fees and charges comes at a cost of $402 million to State revenue.

The Government has allocated $943 million to support small to medium business recovery. The measures include:

• A $2,500 offset for electricity bills supporting 9500 businesses
• Up to $100 million waived in licensing fees
• A waiver in liquor licensing fees for 2020
• A four-month waiver to payroll tax for small to medium business which have taxable wages under $7.5 million.

Resources

Western Australia’s resources sector made the most critical contribution to keeping the State going during COVID-19, delivering a record $172 billion in sales in 2019-20, up $21 billion from the previous year.

Perhaps more significantly for the State, economic activity grew direct employment in the sector to 133,000 full-time jobs, up 6,000 from 2018-19.

The sector will also help keep the Budget in surplus in 2020-21, projected to provide $19.3 billion in royalties to the State, including North West Shelf grants. There are no changes to royalty rates for any minerals.

The Exploration Incentive Scheme will continue in 2020-21 and the Department of Mines, Industry Safety and Regulation is committed to introduce a single approval instrument to approve mining project activities across multiple tenements, streamlining the process.

In terms of energy investment in the State, $127 million has been allocated for renewable energy technology and investing in environmental projects.

Treasurer Ben Wyatt said the economic impact of COVID-19 would have been far greater if not for the efforts of Western Australians.

“The continued operation of the resources industry supported both the Western Australian and national economies, with the construction of new mines and export production continuing strongly,” Mr Wyatt said.

“We are the leading State of a great trading nation. Our living standards are intrinsically connected to a world of commerce and social exchange. This must not be forgotten.”

Since the Mid-year Review, the general government revenue estimates have been revised down by a total of $1.7 billion (over 2019-20 to 2022-23), with large downward revisions to Western Australia’s GST grants and taxation revenue.

In 2020-21, total mineral royalty income is projected to decrease by $163 million (or 1.9%) from 2019-20 to just under $8.4 billion. On a standalone basis, iron ore royalty income is estimated to decrease by $241 million to $7.4 billion in 2020-21.

Iron ore royalties

The buoyant iron ore price has significantly boosted actual royalty income in 2019-20 and previous forecasts for 2020-21, reflecting continued supply disruptions from Brazil and continued demand from China.

The Government has assumed the 62% Fe benchmark price will average US$96.6 per tonne in 2020-21, up from US$92.9 per tonne in 2019-20.

The forward estimates assume that the iron ore price will however revert to its long-run average of US$64 per tonne from June 2021, or about half of its current trading position just north of US$120 per tonne (62% Fe).

Iron ore volumes in 2019-20 were 4 million dry tonnes higher than expected at the Mid-year Review, rising from 832 million dry tonnes to 836 million dry tonnes.

Record production in the June quarter 2020 more than made up for the impact of disruptions caused by Cyclone Damien in February 2020.

Volumes are expected to grow by around 1% per year across the forward estimates period, with new projects coming online mostly replacing depleting production rather than significantly increasing overall output.

Iron ore royalty income is forecast to account for around 85% of total royalty income over the forecast period.

Other royalty income

Royalty income from all other commodities (excluding iron ore) is expected to rise by $78 million (or 9.5%) to $895 million in 2020-21, largely due to higher gold royalties reflecting record gold prices.

There is a forecast $19 million increase in lithium royalties, as producers use existing capacity to increase output in response to an improving lithium market, which more than offsets decline across most other commodities.

Gold Corporation

The Government-owned Gold Corporation has a commitment in the Budget to invest $49.3 million over the forward estimates period to support the delivery of its ongoing services and to update its plant, equipment and computer software rolling programs.

The Gold Corporation operates The Perth Mint – the largest gold refinery in the Southern Hemisphere – which in the past decade has returned $200 million in tax and dividend payments to the State. It also chalked up a record pre-tax profit of $47.55 million 2019-20.

Infrastructure and transport

The 2020-21 Budget includes a record $27.1 billion infrastructure spending spree over the next four years.

This includes a $3.3 billion investment in regional roads, as well as significant increase on last year’s record METRONET investment with an additional $5.5 billion allocated to the Government’s headline project. The METRONET spend includes a $1.5 billion investment from the Commonwealth Government.

The total infrastructure spend for 2020-21 alone will total $4.8 billion, up almost 50% from last year’s forecast.

A $695 million Federal-State City Deal will see the heart of Perth transformed into a university precinct. Edith Cowan University’s Creative Industries, Business and Technology Campus at Yagan Square will bring more than 9,000 students and staff into Perth’s CBD by 2025, reinvigorating the local economy and creating new jobs.

The value of the WA Government contribution to the historic City Deal is $150 million, which includes land for the new ECU campus and $50 million towards an iconic pedestrian and cycle bridge stretching hundreds of metres across the Swan River.

Other key infrastructure allocations in the 2020-21 Budget include:

• $354.5 million for the soon-to-be-completed Forrestfield-Airport Link project
• $275.3 million for 246 locally made railcars and the assembly and manufacturing facility at Bellevue
• $100 million to install Smart Freeway technology on the Mitchell Freeway from Joondalup to the city
• $195 million for the Thornlie-Cockburn Link, Perth’s first east-west rail connection
• $184.7 million for the Yanchep Rail Extension, including three new train stations
• $144.6 million for removal of level crossings, including the Denny Avenue Level Crossing Removal Project and early works for three others on the Armadale Line
• $207.2 million for other projects like the Morley-Ellenbrook Line, Byford Rail Extension and Midland Station project
• $92.3 million for the construction of the new Bayswater Station, the first stage of the Morley-Ellenbrook Line
• $31.5 million to deliver a multi-storey car park at Mandurah Station
• $16.3 million to help plan and build Lakelands Station.

Education and training

Funding for Public Schools

The 2020-21 Budget includes a total of $5.5 billion for public school education across the forward estimates.

An allocation of $456.23 million in funding has been committed for 2020-21, including:

• $39.6 million in funding for Semester 2, 2020 to ensure schools can continue an enhanced cleaning regime to stay COVID-19 safe
• $12 million to complete the installation of 200 primary school science laboratories by 2021 and $5 million to purchase science equipment
• $11.6 million in funding to assist Aboriginal girls education
• $200 million to address high-priority maintenance at all WA public schools, creating thousands of jobs for local workers.

Funding for TAFE

The 2020-21 Budget includes an already announced $229.2 million Rebuilding our TAFEs plan which will invest a record $167.4 million in capital works projects to upgrade infrastructure across the five Western Australian TAFE colleges.  The plan also includes a $57 million package for the training sector that will deliver 15 free short courses and reduce TAFE fees by up to 72%.

Health

Investment in WA’s health sector is a major focus of the 2020-21 State Budget, with a total of $9.6 billion committed for 2021. This includes a $168.6 million boost to meet growing demand for general health hospital services across WA.

There is a major $80 million investment package for essential and community health services, such as in-home health and aged care, which includes $4.8 million towards the treatment of complex aged care clients that require high cost pharmaceuticals. An $18 million contribution to maintaining current levels of support for those who are yet to transition to the National Disability Insurance Scheme is also included.

With the threat of a second wave of coronavirus infections still looming, the Budget commits $20.9 million to strengthen the State’s safeguards against COVID-19, including support for the Public Health Emergency Operations Centre.

To cut elective surgery waiting lists for 2020-21, the McGowan Government is injecting $35.8 million to support elective surgery – alleviating residual pressure from the moratorium on elective surgery implemented during the State’s COVID-19 lockdown. Importantly, this will enable more than 6,000 patients to receive treatment and return waiting lists to pre-pandemic levels.

In a State first, and on the back of Western Australia’s new Voluntary Assisted Dying Act 2019 passed in December last year, this year’s budget also carves out an inaugural $20.1 million to help implement these new reforms and bolster End-of-Life Care.

Regional health services have also benefited with a total of $60.8 million set aside for the Bunbury Regional Hospital redevelopment. This will provide much needed support for one of WA’s busiest regional hospitals, with the population of the South-West area expected to increase by more than 40,000 in the next 11 years.

Mental Health

Mental health is central to this year’s Budget with $1.013 billion carved out for the Mental Health Commission – a 7.5% jump from last budget. As a result, a record $306 million in additional support will be directly provided for mental health services in WA as the community recovers from the widespread impacts of coronavirus. This includes a $68.9 allocation for public mental health hospital services and a a $24.4 million expansion to mental health facilities at the Fremantle Hospital campus.

The 2020-21 Budget continues its focus on supporting Indigenous Australians with a $9.77 million commitment for Aboriginal regional suicide prevention plans in each region of the State. These plans will champion Aboriginal-led and locally endorsed initiatives and form part of a broader $46.9 million contribution toward suicide prevention programs and initiatives.

Additional measures

The 2020-21 Budget commits $750 million to enhance the health and wellbeing of Aboriginal communities. This includes:

• $326 million to build or improve infrastructure for Aboriginal communities
• $51.2 million funding to improve the health and wellbeing of Western Australians, including for Aboriginal people
• $387 million to be spent on generating economic activity and creating WA jobs to improve social and economic outcomes for Aboriginal communities.

The Budget delivers a record regional investment of $7.5 billion in infrastructure, designed to support local employment across the State. It also provides an additional $4.2 billion in Royalties for Regions funding across WA.

Vital services are a focus of the funding, such as $239.8 million for regional school bus services, $1 billion to subsidise water costs for country users.

The Budget fully funds the suite of regional projects announced previously as part of the $5.5 billion WA Recovery Plan.

Another key announcement in the Budget is the allocation of $314 million across the next four years to recruit 800 police officers. This commitment is in addition to the 150 extra officers announced earlier this year.