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Economy

State budget deficit WA’s greatest challenge

“It would be something that would dog us for our term, whether it’s one two three or four terms in office. It would dog us for that period of time because dealing with what confronted us was so extraordinary,” WA Premier, the Hon. Mark McGowan has said, referring to WA’s budget deficit, at the 2017–18 WA State Budget breakfast in Perth.

Mr McGowan said when his government arrived in office, the first state of affairs was a two hour briefing from Treasury on the state of Western Australia.

“I heard this briefing and it was dire. So, I said to the Treasury officers, ‘You need to come to the first formal cabinet meeting and you need to provide that briefing to the cabinet’,” Mr McGowan said.

“So that’s what happened. Now, I understand this is not unique, but what was unique was the scale and extent of the financial issue confronting Western Australian. I know Treasury is renowned for always saying things are bad, but in this case, they’re actually telling the truth.

“My opening comments to the cabinet… my first words to the cabinet, my first formal words as premier of Western Australia, involved the word ‘sandwich’.

“And how we had inherited a sandwich of some magnitude, and it was up to us to understand that our term in government – for however long it went – would be dealing with this sandwich that we had inherited,” he said.

Mr McGowan used his address to outline the expenditure review committee (ERC) process his government has undertaken since elected, which has resulted in the recently handed down state budget.

“In the budget… we aimed to deal with the situation that we’ve been left while getting the balance right in still providing opportunities for growth, employment and the like. As well as delivering the election commitments that we made,” he said.

“So, you saw $3.5 billion worth of budget repair measures, you saw predicted economic growth of three per cent, you saw delivery of a whole range of election commitments – whether it’s infrastructure, or funding for tourism, or our innovation, or agriculture, or defence – to create jobs in Western Australia.

“The continuation of decent services in health and education, tackling the meth crisis confronting Western Australia, it’s always about balance.”

He described the measures as being shared across the community, and therefore not targeting one section in particular.

“We want everyone to take responsibility for repairing the situation we were confronted with,” he said.

“I think it’s now on the Parliament to pass the measures, and I urge our political opponents to take responsibility in that regard to assist in fixing the situation that was largely created over the last eight or nine years.”

In closing his address, he said: “Everyone needs to share in the fix, and Parliament itself across the board, including the opposition, need to take responsibility for assisting the people to get our state out of the situation it’s in.”

Mr McGowan’s address was followed by a detailed briefing by WA Treasurer, the Hon. Ben Wyatt.

Drawing on the Premier’s analogy, he said, “As the premier pointed out, the ERC process has been extensive over the last six months and it’s been dominated by, in particular, by the key focus on the spending side of government.

“That is what I’ve focused on as treasurer – effectively taking hold of that sandwich and chewing it furiously to try and get spending on a more sustainable footing.”

He described the budget as ambitious, bold, and difficult to achieve, saying, “but that is how we return to surplus”.

Mr Wyatt said the period from 2007–08 through to 2013 could be attributed to the time frame where WA’s structural imbalance in finances was created.

“In the four years up until 2016–17, recurrent expenditure increased by 4.2 billion, while revenue increased by $900 million. So you can see the problem that we’ve now got, that we have to address.”

However, he said caution is needed when finding savings, “particularly when you’re trying to support an economy that is now moving in the way we want it to go.”

“As treasurer, in a state government a lot of your spend is driven by demand – people presenting new hospitals, etc. – you can’t simply come in as treasurer and burn the place down trying to shove yourself back into a surplus.

“The deficits that we’ve had have been around for a while. We actually haven’t had a cash surplus in the total public sector, which also includes all the capital spend, since about 2006–07.”

He said the majority of the debt the state holds is attributable to the government sector.

“Our public sector, our number of departments – compared to our all the other states in the nation – is large,” Mr Wyatt said.

“Total public sector net debt includes all that debt that’s being held in our utilities… We have debt at the moment because of our operating deficits. We are now borrowing to fund salaries, etc., but also the debt that’s gone into funding infrastructure in the general government sector for example: schools and hospitals.

“What we have changed is our fiscal targets to recognise that we’ve got to reduce the percentage of net debt being held by the general government sector.

“It’s not something that either the premier or I wanted to do, but in state government your levers are limited, they are blunt, and they are despised. So, what we have tried to do is make them as limited and as targeted as we possibly can.”

He said the focus of the budget has been getting the finances into a more sustainable setting, without doing “too much damage” to the broader economy. He listed the top three priorities for the budget as:
  • Bringing finances under control;
  • Reforming and controlling expenditure; and
  • Delivering on election commitments.
“Eighty per cent of my time in the last six months has been on that second bullet point,” he said.

“What we can control we must control: and that is spend. Our revenue, to a large degree, is out of the control of a state government, particularly when you are vulnerable to the movements of international commodity prices. But what we can do is control our spend.

“The machinery of government changes have been large, they’ve been dramatic, but they’ve been necessary.
“A return to surplus, at the moment, is now expected for 2020–21.”

Watch the full addresses from Mr McGowan and Mr Wyatt below.