09/05/2024
The Cook Government has delivered another strong budget surplus buoyed by mining royalties, but its large cost-of-living relief package and record infrastructure spend may add to inflation.
Western Australia’s budgetary position continues to be enviable to other states and territories, recording a surplus of $3.2 billion for 2023-24, with a further $2.6 billion forecast for 2024-25. WA is in a unique position, with budget surpluses expected until at least 2027. However, public sector debt is expected to increase over the forward estimates from $28.6 billion this year to $40.9 billion by 2028, reflecting an unprecedented increase in infrastructure spending. This is disappointing, as reducing government debt is an important part of reducing the state’s financial risk and strengthening its long-term economic growth prospects.
The Budget shows that iron ore prices are expected to fall to US$71 per tonne by 2027. These assumptions are likely to be on the conservative side, but they drive home the point that this revenue stream may diminish over time. The Government must do more to diversify the state economy and set WA up for longer-term success.
To accelerate diversification, continued effort is needed in opening up WA up to new markets and providing foundational support to growth industries such as new energy technologies and developing advanced manufacturing capability in the state. The strategic industries fund is a good starting point but supported projects must have clear objectives and include measures to simplify planning and approvals processes across governments. An attractive business environment is critical to encourage investment in diverse products, industries and export markets.
Cost-of-living and inflation
The WA Government has delivered a pre-election cash splash in this Budget. The record $762 million of spending on cost-of-living measures, along with infrastructure spending, adds to the risk of inflation remaining higher for longer. The significant cost-of-living package supporting electricity, education and transport bills will be welcomed by many WA households. While there is a need to provide support to those doing it tough, we would have liked to see payments more targeted towards lower-income households.
While Perth’s inflation rate of 3.4 per cent for the year to March 2024 is slightly lower than the national rate, it remains higher than ideal. The State Budget optimistically projects that inflation will decline to three per cent in 2024-25 and to 2.5 per cent throughout the forward estimates. Recent commentary by the Reserve Bank of Australia around the risk of higher inflation indicates inflation must remain front of mind in any spending decisions.
Housing
Housing shortages are one of the main drivers of cost-of-living pressures in the community. The Cook Government has invested an additional $1.1 billion to boost housing supply and affordability, including $400 million to support the delivery, acceleration and refurbishment of social and affordable housing stock. It is pleasing to see that the focus is on housing supply. While this additional funding is welcome, progress in implementation remains slow due to workforce shortages in the construction sector. The $85 million in training support to grow the local construction workforce is a much-needed incentive to address this challenge, although it is by no means a silver bullet.
Innovative methods, such as modular housing, should be considered to speed up the delivery of affordable homes. The announcement to spot purchase $54 million worth of properties under the National Rental Affordability Scheme (NRAS) is a small but helpful step in adding to the social housing stock. The NRAS, a joint scheme with the Federal Government, was a good policy in principle to improve housing affordability for low-income households using a mixed market approach but was plagued by complex administration and inadequate evaluation. Consideration should be given to developing a similar scheme that learns from the mistakes that contributed to its discontinuation.
Additionally, the WA Government must take stronger action to encourage more higher-density residential development, including working with local governments to deregulate planning and zoning restrictions. Reducing further barriers to mobility and downsizing, such as replacing stamp duty with a broad-based land tax would also improve WA’s housing system. The $82 million in stamp duty relief for first home buyers will do little to address this.
Infrastructure
The Government’s infrastructure program is ambitious, with the announcement of a record $12.1 billion additional investment. This includes $1.2 billion in public transport projects, $839 million on health system infrastructure and $355 million in school infrastructure. It is unclear whether the delivery of these projects is achievable with the current skills shortages in the construction industry. The timing of projects may need to be reviewed to ensure they are not crowding out investment in the private sector or other priority projects such as housing. There needs to be continued efforts to encourage skilled migrants to WA to fill gaps in the local workforce while also investing in local training.
Monitoring and evaluation
We welcome funding for WA Treasury’s Performance Monitoring Unit mentioned in the Budget. CEDA has long called for improved monitoring and evaluation of spending across all levels of government to ensure that objectives are being met and spending is efficient and effective.
Energy transition
The Budget includes an additional $500 million to assist the energy transition, notably a $324 million major investment in the state’s electricity network to expand renewable energy projects. WA’s path to net zero remains slow and continued investment will be required to speed up the process. The additional $36 million to streamline the state’s regulatory approvals system is welcome. Maintaining a steadfast commitment to reforming the overly complex, time-consuming and costly environmental approvals processes will be a key component.