West Australian State Budget 2017

The 2017-18 WA State Budget, our Associate Director Jamie Henderson tells you what you need to know.

The landslide election victory in March and record State debt are the realities framing today’s State Budget.

Treasurer Ben Wyatt delivered his budget to a packed Legislative Assembly this afternoon. The Budget starts the path to fiscal repair after the collapse in revenue from GST and mining royalties during the past few years.

The Treasurer pointed to positive signs the WA economy is improving and forecast 3 per cent growth in Gross State Product in 2017/18, and a positive 1 per cent growth in Final State Demand in 2018/19 – the first time in six years this has been positive.

Unemployment has peaked this year, and will begin to fall, with an estimated 20,000 new jobs being created in 2017/18.

Despite repair measures totalling $3.5 billion, gross State debt has jumped since the pre-election financial statement and is forecast to reach $37.8 billion in 2017/18. The Treasurer predicts debt will peak at $43.8 billion in 2020.

The operating deficit will be $2.3 billion in 2017/18 and the forward estimates indicate a gradual return to surplus in 2020/21 –  the first surplus since 2013/14.

Expenditure growth has been constrained to 2.4%, reflecting careful targeting of new initiatives consistent with election commitments.

Our Government Relations team has examined the budget papers to bring you the highlights.

As predicted, gold producers have been targeted with a royalty increase flagged from the start of next year.

The gold royalty rate is to be lifted to 3.75 per cent from 2.5 per cent when the gold price is above A$1,200/ounce (averaged over a month)

• The gold price is currently above $A1,600/ounce
• In addition, the 2,500-ounce royalty-free exemption is to be removed for large producers
• The new royalty rates will be introduced on 1 January 2018
• The changes are estimated to raise $392 million in additional royalty revenue over the forward estimates period
• Small gold producers with production of less than 2,500 ounces will remain exempt from the royalty
• The gold industry joined forces to campaign against previous royalty increases and may do so again, amid concerns any increase would impact future exploration and investment
• The budget also includes $20 million for the Exploration Incentive Scheme to support further mining activity as announced last month

Increases to the payroll tax from July 1, 2018 to June 30, 2023, will raise $435 million over the forward estimates period.

This includes:

• Businesses with payrolls exceeding $100 million will have their payroll taxed at a rate of six per cent (up from the current rate of 5.5 per cent)
• Employers with a payroll exceeding $1.5 billion will have their payroll taxed at a rate of 6.5 per cent

It is anticipated that less than one per cent of Western Australian businesses will be impacted by these changes.

The budget commits $4 billion to Royalties for Regions over the next 4 years.
The most significant expenditure will be:

• $826 million on regional health
• $377 million on regional schools, and training facilities
• $1.25 billion for community infrastructure
• $463 million towards regional rail, roads and ports
• $126 million for initiatives to protect our environment

The budget transfers some recurrent expenditure from general agency budgets into the Royalties for Regions budget. These include:

• The full cost of Patient Assisted Travel Scheme ($147 million over 4 years)
• Putting education assistants back in the classroom ($24 million over 4 years)
• Regional TAFE subsidies ($88 million over 19/20 and 20/21)
• Country water, sewerage and drainage operations ($476 million over 19/20 and 20/21)

It is interesting to note that $250 million has been included in the Royalties for Regions budget for funding election commitments where further planning is required to deliver the proposals.

$1.34 billion has been committed to Stage 1 METRONET projects.

Expenditure includes:

• $535.8 million to build the Thornlie-Cockburn Link
• $520.2 million to build the Yanchep Rail Extension on the Joondalup Line
• $69 million to remove the Denny Avenue level crossing in Kelmscott
• $28.2 million towards the Midland Station Project, including the extension to Bellevue
• $508.2 million to build new rail cars, maximising WA’s manufacturing capability
• Planning and analysis underway for the Morley-Ellenbrook Line, Byford Rail Extension, Karnup Station and additional station upgrades

The long-term plan is to connect suburbs with world-class public transport and deliver well-planned liveable communities across Perth.

To allow for increased service frequencies on the future METRONET network, $7.4 million has been allocated to undertake planning for an automatic train control system to replace the existing signalling system.

• The budget introduces a four per cent Foreign Buyers Surcharge
• The new surcharge is to apply to all purchases of residential property by foreign individuals and entities from January 1, 2019
• The surcharge is on top of the normal transfer duty payable on property purchases
• It will not apply to purchases of commercial or industrial property, nor will it apply to residential developments of 10 or more properties, commercial residential property such as hotels, student accommodation and retirement villages, or mixed use properties that are used primarily for commercial purposes
• It is estimated that revenue of $21 million will be raised in its first full year (2019-20), and a total of $49 million over the forward estimates period to 2020-21
• New South Wales, Victoria and Queensland, all currently apply a surcharge on foreign buyers, and South Australia will apply such a surcharge from next January.

Total expenditure of $8.9 billion, up from $8.6 billion in 2016-17.

Expenditure includes:

• Sustainable Health Review, to look at ways to deliver a patient-first, innovative and sustainable health system
• $2 million to start establishing Urgent Care Clinics within emergency departments and across the community
• $2.8 million to expand the Ear Bus program into the Kimberley region
• $1.9 million to fund meet and greet services for people from remote communities travelling for treatment
• $1.6 million to expand the Find Cancer Early Program into more regional areas
• $5 million to develop the Peel Youth Medical Service Health Hub
• $7.3 million to establish a 10-bed Step Up/Step Down community mental health facility in Kalgoorlie

Total expenditure of $5.02 billion, up from $4.8 billion in 2016-17.

Expenditure includes:

• 470 extra education jobs in public schools will be created
• $124.1 million to deliver election commitments which will provide new education initiatives and additional classroom teaching support
• $465 million towards public school infrastructure which will create new jobs for WA workers
• 11 new schools, 4 performance arts centres and 5 early learning centres will be built
• 28 schools across WA will be upgraded

The McGowan Government will introduce a new point of consumption wagering tax of 15 per cent of net wagering revenue of online betting companies offering their product in Western Australia.

The point of consumption wagering tax will be introduced from January 1, 2019.

The tax will be broadly consistent with the South Australian model, with rebates to the local racing industry to ensure it is no worse off.

Details of the wagering tax will be informed by work co-ordinated by the Council on Federal Financial Relations to consider a nationally consistent POC wagering tax regime. Consultation to be undertaken ahead of implementation.

Labor has committed to a record $2.7 billion roads budget, with funding allocated to 20 key road projects.

The Government views these network upgrades as essential to reducing road congestion, improving safety and helping to boost the local economy to create jobs.

Among the projects are several of the key road initiatives announced as part of the joint State and Federal Government’s Boosting Jobs, Busting Congestion program. Expenditure includes:

• $237 million for the Armadale Road/North Lake Road bridge over Kwinana Freeway
• $50 million for a new traffic interchange at Wanneroo Road and Joondalup Drive
• $49 million for the widening of Kwinana Freeway northbound between Russell Road and Roe Highway
• $70 million Reid Highway dual carriageway between Altone and West Swan roads
• $40 million to widen Mitchell Freeway southbound between Cedric and Vincent streets

The Budget includes a 20 per cent increase in regional road funding. Regional road expenditure represents 50 per cent of the State’s total spending on roads.

The Government will provide $184 million in local government grants for road projects in 2017-18.

$129 million will also be invested in new cycling infrastructure across the Perth Metropolitan Region and grants given for a range of community cycling initiatives.

• In Tourism, an additional $87 million has been committed over the budget period for events and destination marketing to support tourism along with $20 million over five years to establish the Aboriginal Ranger Program
• The high-tech sector is set to benefit from a $17 million new industries fund which will offer grants for new technology start-ups and computer gaming
• Western Australian cyclists will be happy with the $129 million investment in cycling infrastructure. This includes $55 million towards filling gaps on the Principal Shared Path (PSP) network around Perth, $45 million for paths alongside major road projects and $29 million in grants for local governments for a range of community cycling initiatives
• For the science minded amongst us, $12 million has been allocated to convert existing classrooms to science labs across 200 primary schools and a further $5 million in grants of $25,000 for schools to equip those labs

Law and order expenditure is $3.04 billion, up from $2.9 billion in 2016-17.

• Investment in implementing the first stages the Government’s Methamphetamine Action Plan (MAP)
• $83.5 million for the Meth Border Force including the recruitment of 100 sworn police officers and 20 specialised intelligence staff
• $3.8 million for the WA Police Force to target roadside drug and alcohol testing
• Development of residential and community-based treatment facilities
• $11.5 million for the development of the first dedicated drug and alcohol rehabilitation prison
• $18.2 million for an alcohol and other drug residential rehabilitation centre in the South West and commence planning for a Kimberley centre
• $12 million for alcohol and drug residential and community based treatment facilities
• $18.5 million for the Regional Enforcement Unit to increase traffic enforcement on country roads
• $8.3 million to establish two additional women’s refuges, with work to commence in 2018
• $6.5 million to deliver three more 24/7 police stations at Armadale, Cockburn and Ellenbrook
• $8 million for a new Capel Police Station.

Aim to reduce public servants by 3,000 FTE in 2017-18.

The Voluntary Targeted Separation Scheme seeks to deliver ongoing savings estimated at around $185 million per annum from 2018-19 by reducing public sector employee numbers.

$1.7 billion in savings measures in the public sector including:

• Four-year wage freeze determined by the Salaries and Allowances Tribunal
• 20% reduction in the Senior Executive Service
• 40% reduction in the number of Government departments
• No indexation for non-salary related expenditure, savings through better management of the workforce, State fleet and office accommodation

Some key assumptions underpinning the State Budget include:

Population growth
1.0%

Employment growth
1.5%

Unemployment rate
6.0%

Wage Price growth
1.5%

CPI growth     
1.0%

Iron price
$US67.2/t

Iron volumes
817 million tonnes

Crude Oil price
$US51.6 per barrel

Exchange rate $US/$A
79.0 cents

Don’t forget, a significant set of repair measures on which today’s Budget is based were announced earlier this year. The changes to tariffs, fees and charges for 2017/18 took effect from July 1, 2017.  These changes are predicted to improve the State’s net debt position by about $238 million over the forward estimates period.

Fees and Charges

The total expenditure by the representative household on the basket of government goods and services is forecast to increase by $438 (or 7.7 per cent) per household.

The major changes were:

• 10.9 per cent increase (or $169) on the average household for the fixed charge component of electricity bills
• 6 per cent increase in water, sewerage and drainage fees
• 1.8 per cent increase in public transport standard fees
• Increased public transport fees for students – up from 60 cents to 70 cents
• 5 per cent reduction in the discount offered to SmartRider fares for public transport
• 2.8 per cent increase to motor injury insurance
• 1.7 per cent increase to driver licence fees
• 5.5 per cent increase to vehicle licence fees
• 3.3 per cent on average increase in the Emergency Services Levy

There is no change to Stamp Duty.

Changes to Concessions

The Annual Energy Assistance Payment was increased to $300, a $66 increase from 2016-17. This concession is paid annually to about 200,000 households who hold Commonwealth concession cards.

The Hardship Utility Grant Scheme (HUGS) received an additional $16.3 million over two years and the HUGS grant limit increased from $538 to $581, and $891 to $962 for those living above the 26th parallel in the north of WA.

For seniors’ households with Commonwealth concessions cards, the Government continues to provide the 50 per cent rebate for water service charges (capped at $600) and local government rates (capped at $750), and a 50 per cent rebate on the underground electricity connection charge.

For households which do not hold a Commonwealth concession card, but do hold a WA Seniors Card, the rebates were capped at $100 each.