The 2020-21 Western Australian State Budget (the Budget) is expecting a general government operating surplus of $1.2 billion in 2020-21, although this is significantly lower than the 2019-20 Mid-year Financial Projections Statement (the Mid-year Review).
Even with the impact of COVID-19 felt in the last June quarter of 2020 (contraction of the WA economy by 6 per cent), this is the second time the Budget has recorded a surplus in six years ($1.7 billion in 2019-20). Surpluses are also forecasted across each of the outyears.
Total general government revenue has been revised down $1.7 billion over the forward estimates, driven by lower taxation and GST revenue. Although this revision is partially offset by higher iron ore royalties in 2019-20 and 2020-21.
General government expense has also been revised up $4.9 billion over the forward estimates.
Total public sector net debt is estimated to be $39.2 billion in 2020-21, increasing to $42.8 billion over the forward estimates (14.1 per cent of gross state product, GSP). The WA Government maintains this level of net debt is affordable when compared to other economies internationally.
Real GSP is expected to grow a modest 1.25 per cent in 2020-21, increasing to 2.75 per cent in 2021-22 then falling to 1.5 per cent in 2023-24.
Before COVID-19, the unemployment rate had fallen to 5.2 per cent in February 2020, the lowest rate in almost five years. It is expected to peak at 8 per cent in 2020-21, then decline to 6 per cent in 2023-24.
Growth in the wage price index is expected to soften to 1.5 per cent in 2020-21, reflecting spare capacity in the labour market. Some private sector industries with skills shortages will experience pressure on wages.
Key economic parameters from the Budget are:
Actual | Budget estimate | Forward estimates | ||||
2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 | 2023-24 | |
Real GSP growth (%) | 1.0 | 2.0 | 1.25 | 2.75 | 1.25 | 1.5 |
Unemployment rate (%) | 6.1 | 6.1 | 8.0 | 7.0 | 6.25 | 6.0 |
Population growth (%) | 1.0 | 1.3 | 0.8 | 0.7 | 1.0 | 1.3 |
Consumer price index (%) | 1.3 | 1.3 | 1.5 | 1.75 | 1.75 | 2.0 |
Exchange rate (USD/AUD, cents) | 71.5 | 67.1 | 72.6 | 72.9 | 72.8 | 72.7 |
Iron ore price (USD/t CFR) | 80.4 | 92.9 | 96.6 | 64.0 | 64.0 | 64.0 |
Crude oil price (USD/barrel) | 68.6 | 51.3 | 44.6 | 48.5 | 49.9 | 51.1 |
Royalty revenue is forecast to be $8.3 billion in 2020-21, an increase of $2.3 billion since the Mid-year Review. Royalty income is projected to decrease by $2.6 billion in 2021-22, with the iron ore price assumed to return to its long-run average of USD64 per tonne from 1 June 2021 onwards.
Royalty revenue from all other commodities is expected to be $895 million in 2020-21, largely due to high gold royalties. A $19 million lift in lithium royalties is forecasted for 2021-22, based on assumptions of increased output due to improving market conditions.
Commodity exports are largely unaffected by COVID-19. Iron ore exports grew 16.5 per cent in the June quarter 2020 to a record high. However, export growth is expected to be flat in 2020-21, reflecting the combined impact of an assumed decrease in LNG volumes and moderate forecast increases in gold and iron ore exports. Exports are projected to increase 1.5 per cent in 2021-22 and expected to recover over the forward estimates.
Iron ore volumes are projected to increase over the forward estimates to 878 million tonnes in 2023-24 (an increase of 42 million tonnes from 2019-20).
Highlights of key Budget revenue and expense measures relevant to the resources sector are included under CME’s strategic priorities of competitiveness and capability.