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The West Australian Budget presents a strong economic outlook and makes much overdue investments in health and social housing, but this strength is at risk if skills shortages are not addressed, says the Committee for Economic Development of Australia (CEDA).
WA’s massive $5.6 billion budget surplus for 2020-21 – with $2.8 billion expected for 2021-22 – puts the state in a position the rest of Australia (and the world) can only dream of.
CEDA Senior Economist Cassandra Winzar says the McGowan Government must not squander this opportunity with more short-term thinking.
“We need more long-term policy and planning through investments in social and affordable housing and expanding the health system; a skills and training plan that accounts for cyclical fluctuations; and reform to key policy areas such as stamp duty and investment in digital services,” Ms Winzar said.
“The State Government must not waste this war chest, otherwise it risks repeating the mistakes of the previous mining boom.
“Key to this long-term thinking is a focus on diversifying WA’s resource reliant economy.”
While the WA economy has avoided the worst impacts of the COVID-19 pandemic, significant sectors remain weak, notably international education, CBD-based tourism and the arts. Services exports fell by 38 per cent in 2020-21 and are forecast to decline by a further 12 per cent in 2021-22. There is little in this Budget for these industries.
These important sectors are required to diversify the economy. They need ongoing support to bounce back once borders reopen.
Despite recent falls in the iron ore price, the budget bottom line will remain healthy over the forward estimates, given WA Treasury uses long-term average iron-ore price estimates in its forecasts. Budget surpluses are forecast each year over the forward estimates.
CEDA has long called for WA to boost its social-housing spending. While the $875 million package in this Budget is the biggest one-off social-housing funding injection in WA’s history, it must be part of a long-term commitment to increase social-housing stock, not a one-off investment. Given construction times and constraints on trade, most of this spending won’t bear fruit until 2022-23.
It is also good to see existing funding will be used to deliver modular prefabricated builds to address current shortages. Despite the increase in social housing spending, there is little in the Budget for affordable housing. With the National Rental Affordability Scheme coming to an end soon, affordable rentals are likely to become a crunch point and must be addressed.
Skills shortages are no longer limited to mining and construction, but are also affecting critical services including health and aged care. The $1.9 billion in increased funding for health is welcome and sorely needed, but its benefits will be hard to realise with limited available staff.
While border closures are partly responsible for these skills shortages, they were also in many cases inevitable given the state’s limited investment in training and a lack of long-term strategic planning. The $121.4 million package of investments and incentives for apprentices and trainees will help, but this needs to be a long-term ongoing investment designed to respond to changing economic conditions.
Demand for workers in the social and community sectors, including aged and disability care, is only going to grow over coming years and decades. In the short term, WA needs a plan to safely reopen skilled migration for these critical sectors at the very least.
The $1.9 billion in extra funding for health and mental health is desperately needed to address WA’s struggling healthcare system. But given the shortage of hospital beds and staff, this won’t be enough to meaningfully increase capacity. We need much more investment in this area and planning for future population growth.
The Budget forecasts moderate population growth over the forward estimates, based on international borders reopening in the September quarter 2022, in line with the 2021-22 Commonwealth Budget assumption. WA risks its economic strength if it doesn’t reopen in line with the national plan.
Another overdue opportunity for reform is stamp duty. WA’s economy and its key revenue sources – mining royalties and stamp duty – are highly cyclical. Replacing stamp duty with a phased-in land tax will not only remove one of our most inefficient taxes, but also bring a more stable revenue base to the state.
“The McGowan Government must invest this surplus in the best long-term outcomes for all West Australians and lock in the gains of this current economic strength,” Ms Winzar said.
“WA must not repeat the mistakes of past booms by letting this opportunity pass.”
Cassandra Winzar is available for further comment and interviews.
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CEDA – the Committee for Economic Development of Australia – is an independent, not-for-profit membership organisation.