West Australian Treasurer Ben Wyatt has flagged a big jump in infrastructure spending after better than expected iron ore prices helped insulate the state from sluggishness in the broader economy.
Wednesday’s mid-year budget update saw the state increase its forecast operating surplus from $1.5bn to $2.6bn because of a stronger iron ore price and a weaker Australian dollar that boosted mining royalties.
The state cut its overall gross state product growth forecast from 3.5 per cent to 3 per cent, however, and state final demand growth from 3 per cent to 2.25 per cent. The downgrades follow the federal government’s writedown of wage growth and surplus forecasts this week.
Mr Wyatt warned that issues such as Brexit, the unrest in Hong Kong and the ongoing trade spat between China and the US would weigh on the global economy and ultimately iron ore prices.
“I wanted to protect against what I think will be an inevitable decline, probably sharpish, early next year,” he said.
He forecast that the price of iron ore would drop from an average of $US85.80 a tonne this year to $US66.20 in the next financial year. Iron ore industry royalties are the single largest source of income for WA coffers.
The state also continues to feel the impacts of low wages growth, which is weighing on household consumption.
Labor introduced a cap on public service pay rises when it came to power, and Mr Wyatt said the government would continue to focus on job creation rather than increasing wages.
“We still need to maintain tight spending because we do need to have that impact on debt, and we do need to do a significant asset investment program,” he said. “We are very much focused on job creation and I think that’s a better use of the money in terms of asset build at the moment rather than a wages policy that is out of step with the rest of the economy.”
The government has stepped up investment in its multi-billion-dollar Metronet transport system in recent months, as well as unveiling new measures such as payroll tax relief for small business, a cut in TAFE fees and investment in social housing, to try to stimulate the economy.
The forecast surplus will give the government firepower for spending in the lead-up to the state election in March 2021, although Chamber of Commerce and Industry chief executive Chris Rodwell called on Labor to resist the urge to increase spending.
He said while the surplus was a welcome bonus at a time when “growth and confidence in the economy are lagging”, interest payments on the state’s debt would exceed $900m this year.
“It is critical that progress not be squandered or unwound,” Mr Rodwell said.
“Claims upon government funds become louder in times of surplus and the WA economy is not in a strong-enough position to sustain unnecessary and unconstrained new spending.”