Western Australia: 2017-2018 State Budget Review
|
|
2017/18 Budget Estimate |
2018/19 Forward Estimate |
2019/20 Forward Estimate |
|
Net operating balance |
-$2.3B |
-$1.7B |
-$1.1B |
|
Net debt |
$37.8B |
$41.4B |
$43.8B |
|
Economic Growth |
1.5% |
1.5% |
2.0% |
|
Inflation |
1.0% |
1.5% |
2.0% |
|
Unemployment Rate |
6.0% |
6.0% |
5.5% |
|
Population growth |
1.0% |
1.2% |
1.5% |
|
Dwelling Investment |
-2.5% |
5.0% |
3.5% |
|
Business investment |
-12.0% |
-8.5% |
6.0% |
|
Medium House Price |
-1.3% |
0.7% |
1.5% |
Economic and Fiscal Outlook
The Western Australian economy is showing signs of recovery, with economic growth (as measured by Gross State Product (GSP)) forecast to lift to 3% in 2017-18, after bottoming at an estimated 0.25% in 2016-17. This reflects continued strong growth in net exports, as well as reduced ‘drag’ from business investment.
The tapering decline in business investment (from an estimated $14.8 billion fall in 2016-17 to a $4.5 billion fall in 2017-18) reflects that the State’s large LNG projects are moving into their final stages of construction and commissioning.
Reflecting trends in investment, the rate at which the domestic economy (as measured by State Final Demand) is contracting is also expected to moderate in 2017-18, after an estimated record decline of 7% in 2016-17.
Recent signs of recovery in the labour market are expected to continue, with employment forecast to start growing again in 2017-18. However, elevated spare capacity in the labour market is expected to keep wage growth contained which, combined with continued weakness in the State’s housing market, is expected to see growth in the Consumer Price Index remain below trend over the forecast period.
Property Sector Take-Outs:
- No land tax increases in 2017/18
- A 4% Foreigner Owner Duty Surcharge to apply in 2019
- $1.2B of infrastructure funding allocated to METRONET stage 1 over the next 3 years
- Up to 10% of METRONET to be funded through land sales and value capture
Analysis
After bottoming at just 0.25% in 2016-17, growth in the State’s economy is forecast to recover to 3% in 2017-18. Employment growth is also forecast to recover, with nearly 20,000 jobs expected to be created in 2017-18.
However, the State’s revenue base remains under considerable pressure, with the general government revenue estimates revised down by a total of $5 billion over the period 2016-17 to 2019-20 since the Pre-election Financial Projections Statement (PFPS).
In response, the Government has constrained average annual expense growth to just 1.9% over the forward estimates period and implemented a comprehensive package of Budget repair measures that reduces net debt by $3.5 billion, and ensures that the whole community contributes as fairly and evenly as possible to the critical task of repairing the State’s finances.
In addition, the 2017-18 Budget accommodates $3.7 billion in election commitments, but the net debt impact of these commitments has been contained to $603 million due to offsetting savings and reprioritisation of existing spending.
The Government has also adopted a new set of financial targets in this Budget. Consistent with these targets, the general government operating balance is expected to improve in each year of the forward estimates period, from an estimated $3 billion deficit in 2016-17 to a $2.3 billion deficit in 2017-18 and a forecast return to surplus (of $1.3 billion) in 2020-21.
Foreign Investor Stamp Duty Surcharge
From 1 January 2019, a 4% Foreign Owner Duty Surcharge will apply in Western Australia on purchases of residential property by foreigners, including individuals, corporations and trusts. The surcharge is in addition to transfer duty generally payable on property acquisitions.
The surcharge is restricted to residential property but excludes residential developments of ten or more properties, commercial residential property such as hotels, student accommodation and retirement villages, and mixed-use properties that are used primarily for commercial purposes.
We have expressed concerns but the imposition of the foreign investor tax but are pleased that the Government looks set to avoid the mistake of some eastern states that taxed developers wanting to deliver new supply.
If it is backed by well-designed legislation, the commitment to exclude investment in residential developments of ten or more properties from the tax means companies simply wanting to create new projects can get on with the task of adding new supply and generating jobs.
Payroll Tax
Temporary Progressive Payroll Tax Scale for Large Employers
The 2017-18 Budget introduces a progressive payroll tax scale for a finite period of five years from 1 July 2018.
From 1 July 2018 until 30 June 2023, Western Australian employers with an Australia-wide, annual taxable payroll exceeding $100 million will face a marginal tax rate of 6% (up from the current 5.5%) on the part of their payroll above $100 million but less than or equal to $1.5 billion, and a marginal tax rate of 6.5% on the part of their payroll exceeding $1.5 billion.
Infrastructure
In 2017-18, the State’s investment in economic and social infrastructure (i.e. the Asset Investment Program or AIP) is forecast to total $6 billion, an increase of $820 million on the estimated outturn for 2016-17.
Infrastructure investment in this Budget is dominated by roads, public transport, water and electricity, with these sectors accounting for around 70% of the 2017-18 AIP. Health and education account for a further $1 billion or 17% of the 2017-18 AIP.
Delivering the Government’s election commitments is a major focus of the program, with $2.9 billion in new asset investment in this Budget including:
– $1.3 billion towards METRONET Stage 1 projects. This includes work commencing on the extension to Yanchep and the Thornlie-Cockburn Link;
– $809 million for upgrades to key roads, including the Armadale Road – North Lake Road Bridge at Kwinana Freeway, extension of Leach Highway between Carrington Street and Stirling Highway, and investment in regional roads such as the Karratha to Tom Price Road, and Albany and Bunbury Ring Roads;
– $362 million for the construction, refurbishment, and expansion of public schools across Western Australia;
– $16 million for a new Capel Police Station, establishment of the Meth Border Force and to support 24 hour services at Armadale, Ellenbrook and Cockburn Police Stations, and extended hours at Forrestfield, Belmont and Canning Vale Stations; and
– $10 million to establish the State’s alcohol and other drugs rehabilitation prison at the Wandoo facility and invest in drug detection assets.
Wherever possible, the Government has minimised the net debt impact of these new investments by reallocating funding from other projects (such as the now cancelled Perth Freight Link project) and identifying new funding sources.
Metronet
This Budget includes investment of $1.3 billion over the period 2017-18 to 2020-21 for METRONET Stage 1 projects, with a further $469.3 million beyond the forward estimates period.
The costs of constructing the Thornlie-Cockburn Link and the Yanchep Rail Extension have both been funded, with an estimated total cost of $1.1 billion over five years from 2017-18 (including $44.5 million in 2021-22 for new buses). A further $22.1 million will be spent across 2017-18 and 2018-19 to undertake planning and develop business cases for the Morley-Ellenbrook rail line and extension of the Armadale line to Byford. The funding for constructing these rail lines will be included in future Budgets.
The Government has committed to removing four rail level crossings on the Midland and Armadale lines. This Budget includes $70 million over the period 2017-18 to 2019-20 to remove the Denny Avenue level crossing on the Armadale line (Kelmscott) and to undertake planning for the removal of the remaining three crossings at Caledonian Avenue (Maylands), Oat Street (Carlisle) and Wharf Street (Queens Park).
A further $54.2 million has been allocated over the period 2017-18 to 2020-21 (with a further $47.1 million beyond the forward estimates period) for New Stations and Existing Station Upgrades. The Government will undertake planning and develop business cases for the construction of a train station at Karnup on the Mandurah line, and for extending the Midland line to Bellevue. The Budget includes an allocation to purchase land in Bellevue for the future station. The Government will also commence a program to upgrade existing stations, by improving disability access, CCTV, lighting, station access and pathways.
A total of 102 new railcars will be acquired to cater for METRONET Stage 1 projects, at a cost of $322.7 million over the period 2017-18 to 2020-21 (and a further $185.5 million beyond the forward estimates period). These railcars will provide for services on the Thornlie-Cockburn Link and Yanchep Rail Extension, as well as the new rail lines, rail line extensions and new stations to be funded in future Budgets. The railcars will be procured as six-car sets, to provide additional passenger capacity.
An amount of $7.4 million has been allocated across 2017-18 and 2018-19 to undertake planning for a modern Automatic Train Control signalling system, with investment to be funded in a future Budget.
Over the forward estimates period, METRONET will be funded through the reallocation of $1.2 billion funding from the cancellation of Perth Freight Link ($459 million of State funding and $776.4 million of Commonwealth funding), and $104.8 million from value capture and land sales revenue (as shown in the following table).
Metronet Stage 1 Projects
|
|
2017-18 |
2018-19 |
2019-20 |
2020-21 |
|
|
$m |
$m |
$m |
$m |
|
|
|
|
|
|
|
Capital Expenditure |
||||
|
Yanchep Rail Extension |
30.7 |
105.0 |
161.5 |
143.6 |
|
Thornlie-Cockburn Link |
8.0 |
110.0 |
155.0 |
1.0 |
|
Railcar Acquisition |
1.0 |
12.1 |
– |
– |
|
Level Crossing Removal Program |
||||
|
1.0 |
– |
– |
– |
|
– |
35.0 |
34.0 |
– |
|
New Stations and Existing Station Upgrades |
||||
|
4.0 |
1.2 |
– |
– |
|
– |
25.0 |
– |
– |
|
– |
2.1 |
10.8 |
11.0 |
|
Automatic Train Control Planning |
4.2 |
3.2 |
– |
– |
|
Total |
58.9 |
341.9 |
469.0 |
470.4 |
|
Funding |
||||
|
Commonwealth (reallocation of PFL) |
9.0 |
25.0 |
84.4 |
658 |
|
Land Sales and Value Capture |
– |
– |
34.9 |
69.9 |
|
State Capital Appropriation (reallocation of PFL) (a) |
49.9 |
316.9 |
349.7 |
-257.5 |
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