Mark McGowan’s predicted $2.8 billion Budget surplus poised for $1 billion hit

Joe Spagnolo The West Australian
Premier Mark McGowan.
Premier Mark McGowan. Credit: Justin Benson-Cooper/The West Australian

Mark McGowan’s predicted $2.8 billion Budget surplus for this year is already in serious doubt — just 10 days after the release of the State Budget.

Since Budget day on September 9, the iron ore price has fallen to US$100 — down 12 per cent on the US$121 a tonne price used by Treasury to forecast the State’s operating balance this financial year.

If this continues over the course of this year, it would mean the $2.8 billion surplus predicted for 2021-22 would be reduced by at least $1 billion.

“The volatility seen in the iron ore price is no surprise to my Government, in fact we have been carefully planning for this exact scenario despite ongoing calls to splash out and wildly spend while the price was riding high,” Premier McGowan said at the weekend.

“What we are seeing justifies why we have maintained our disciplined and responsible approach to the State’s finances and, more specifically, the recent State Budget.”

During last financial year, the price of iron ore reached dizzy heights — above US$200 a tonne — resulting in billions of dollars in royalties for the McGowan Government.

WA Premier Mark McGowan.
WA Premier Mark McGowan. Credit: Justin Benson-Cooper/The West Australian

A record $5.6 billion has been achieved for last financial year, despite the COVID-19 pandemic, which left every State and Territory in Australia with a Budget deficit. When the State Budget was finalised in August, prices for iron ore were still above US$160 a tonne.

In the past two months, the iron ore price has fallen by more than US$100 a tonne.

The decline has been driven by a number of factors, including the cooling off of China’s residential property market and the cutting of steel production in China. Such is the volatility of iron ore prices that Treasury has assumed a rate of US$66 a tonne for 2022-23.

Mr McGowan said the unpredictability of iron ore prices meant it was vitally important historic GST legislation in 2018 — which guarantees WA no less than 70¢ in the dollar in receipts — was not wound back.

Prime Minister Scott Morrison has so far assured this will not happen but some Eastern States want the legislation scrapped. “Our State’s strong mining industry deserves credit for powering the nation’s economy during what have been challenging times,” Mr McGowan said.

“But a GST raid from the Eastern States is a real and dangerous threat to WA and that is why my ongoing fight for a fair share of GST for all Western Australians is so vital for the future of this State.”