Operating Deficit Forecast For 2015-16 To Be $3.1 Billion

Operating Deficit Forecast For 2015-16 To Be $3.1 Billion

Western Australia Premier Colin Barnett

Western Australia Treasurer Mike Nahan

‘Perfect Storm’ Shows Urgent Need For GST Reform

Victor P Taffa

  • State revenue revised down by over $17 Billion for the period 2014-15 to 2018-19
  • Operating deficit forecast for 2015-16 at $3.1 Billion
  • Another $1.3 Billion in saving measures introduced
  • GST inequity driving debt increase

The State Government has introduced an immediate six-month recruitment freeze across the general public service as part of a $1.3 Billion savings package, to further clamp down on expenses growth in light of a forecast State Budget deficit for 2015-16 of $3.1 Billion.

Presenting the Mid-year Review for the 2015-16 fiscal year, Premier Colin Barnett and Treasurer Mike Nahan said the freeze would apply to all general public service positions with the exception of teachers and Police.

Premier Barnett said the recruitment freeze was among a package of new corrective measures that would result in savings totalling $1.3 Billion.

“These savings measures mean this State Government has introduced $24.1 Billion in general government operating savings since it came to office in 2008.” Premier Barnett said.

Forecasting a $3.1 Billion operating deficit for 2015-16, Dr. Nahan said the State’s finances had been hit by the ‘Perfect storm’ of falling commodity prices, particularly in iron ore and oil, and subdued taxation collections from a softer domestic economy, while at the same time the State faced further reductions in GST as we have been forced to increasingly subsidise other States.

“These numbers reinforce our belief that the GST regime unfairly penalises those States with a strong reliance on commodities.  No government can produce surpluses after sustaining the massive hit to its revenue bases that we have.” the Treasurer said.

“If WA received a per capita share of GST then we would report a surplus of $1.3 Billion in 2015-16, rather than a deficit of $3.1 Billion.”

The Mid-year Review showed that the Government expected to record a deficit of $3 Billion in 2016-17 with the State Budget returning to surplus in 2018-19 as a result of the combined impact of ongoing expenditure restraint and the partial recovery of GST.  Western Australia’s GST share hit 30 cents in the dollar in 2015-16, $4.4 Billion less than if it was distributed on a per capita basis.

Dr. Nahan said the State’s revenue forecasts had now been revised down by a total $17 Billion for the period from 2014-15 to 2018-19 over the last 18 months, largely from falling commodity prices but also from softer payroll tax collections and declining transfer duties.

The Treasurer called on the Commonwealth Government to recognise that WA was in a unique position.

“We have been forced to live off royalties even though almost 80 % of that money was re-distributed to the other States via the Commonwealth.” Dr. Nahan said.

“Now we face being left with additional debt of around $8 Billion by the end of 2018-19 because the GST fails to recognise the volatility of commodity prices. We should not be burdened with debt arising from a broken system.”

The Premier said Western Australia would receive just $1.9 Billion, or 3.3 %, of the $57.1 Billion GST pot this year.

“We are currently funding other States to the tune of $4.4 Billion this year, including $989 Million to Queensland, $971 Million to South Australia and $666 Million to Tasmania.” Premier Barnett said.

Dr. Nahan said the State Government was committed to keeping expenses under control, with savings measures introduced as early as the 2009-10 State Budget.

WA Treasurer Mike Nahan

WA Treasurer Mike Nahan

 

 

 

 

 

 

 

 

“Expense growth was contained to just 2.2 % in 2014-15, the lowest outcome in 20 years.” Dr. Nahan said.

“These deficits are not about expenses but about revenue and all State Governments have very limited options in that area.”

The Treasurer said the Mid-year Review made it even more important that public sector wages be contained, calling on public sector unions to play their part.

“We have the best paid public service in the country but it’s time to take a breather. In the current climate, unions must show restraint and accept that a pay rise reflecting CPI is an extremely good result for their members.” Dr. Nahan said.

The Treasurer said the State Government would continue its campaign to reform the GST distribution ahead of any changes to the GST rate.

The Premier said the general WA economy was in good shape despite the Government’s revenue being hit by commodity prices and the GST inequities.

“We still have a healthy mining sector, a buoyant agricultural industry, and we’re seeing new opportunities arise in education, tourism, health and tertiary services.” Premier Barnett said.

“This Government has invested heavily in infrastructure for the future, in schools and hospitals, in our power and water and transport networks. We have transformed the regions through Royalties for Regions, and Perth through projects such as Elizabeth Quay, the Perth Stadium and Northbridge Link.”

Fact File

New savings measures ($1.3 Billion over four years):

  • Six-month recruitment freeze
  • Salary underspend provision ($496 Million)
  • Reduce non-salary expense indexation ($185 Million)
  • Agency expenditure reviews ($233 Million)
  • Government Regional Officers Housing reforms ($28 Million)
  • Insurance Commission of WA 2014-15 special dividend ($93 Million)

Asset investment savings:

  • Deferral of Asset Investment Program projects ($157 Million)
  • Western Power infrastructure reduction ($120 Million)
  • 5% infrastructure efficiency target ($96 Million)
  • Department of Culture and the Arts agency expenditure review ($3 Million)

Change in net debt as a result of savings measures: -$1.276 Billion