Western Australia's budget reveals a treasure trove of riches and an inability to take full advantage of them, according to Australia's leading professional accounting body, CPA Australia.
"Labour shortages will act as an anchor on the WA economy until the state's borders re-open," says CPA Australia General Manager External Affairs Dr Jane Rennie.
"Ordinarily, the east coast provides a steady stream of workers, but WA's 'conscious uncoupling' from Australia's most populous states and international border closures have limited this migration.
"Despite being flush with cash, the tight labour market may impact the WA Government's ability to implement its major budget initiatives.
"Labour shortages go hand in hand with wage pressure. WA currently has the fastest growing wages in Australia. Big business can better withstand short-term wage growth, but this may well challenge the profitability of WA's small business sector."
The headline figures in today's budget are enviably strong. WA is the only Australian state or territory economy in surplus ($5.6 billion). Government revenues for 2020-21 grew by 25 per cent, with iron ore royalties responsible for $11.3 billion of that.
The state's debt is falling and is forecast to be $33.5 billion as at June 2021. WA's economy grew by 3.25 per cent in 2020-21 and is expected to grow by 3.5 per cent this financial year.
"Physical isolation from the rest of the nation has allowed mineral extraction to continue uninterrupted. As a result, WA has recorded a growth rate stronger than almost anywhere in the world.
"Iron ore royalties, which flow directly to WA rather than the Commonwealth, have delivered rivers of gold into the state's coffers, but this may slow before too long."
The budget anticipates the price of iron ore will more than halve over the next two years. Iron ore royalty income is expected to drop from $11.3 billion to $5 billion for 2022-23.
"Now is the time to take these windfall gains and invest in the state's future. The predicament for the government is how to do this while borders are closed and the labour market remains tight."
There are no new taxes or revenue raising measures in the budget. "The size of its budget surplus puts WA in a unique position to pursue taxation reform. It's likely that concern about potential risks to revenue has curbed the government's desire for reform."
Success in minimising COVID-19 outbreaks has meant that pandemic-related spending has so far been much lower than forecast. The budget allocates an additional $487 million to bolster the state's COVID-19 preparedness.
"It's inevitable there will be a COVID-19 incursion at some point and it's good to see the government preparing for this eventuality. However, by far the biggest chink in the armour of WA's COVID-19 readiness is its health system."
Even before it was announced, the budget's $1.9 billion investment in the health system was being criticised as inadequate. "In the event of a COVID-19 outbreak, the size of today's health care announcement is likely to look very light on. With no shortage of money in the government's back pocket, spending more on health now might have been worthwhile."
There's a strong focus on creating jobs in the budget, with $100 million going towards establishing the Investment Attraction and New Industries Fund.
"Arguably, this money would be better spent on reskilling the current workforce and driving productivity growth. Official jobs data released today shows that WA is creating jobs faster than anywhere else except the Northern Territory."
The budget allocates $30.7 billion over the next four years towards infrastructure, which largely fulfils election promises such as the METRONET project.
Disappointingly, the budget papers include few references to small and medium enterprises (SMEs), especially those in hard-hit industries like tourism and hospitality. "This is a missed opportunity to increase support for SMEs in critical areas like improving their digital capability or seeking professional advice."
Skyrocketing property prices and a shortage of affordable housing are major issues in Western Australia. "Property market pressures will intensify when borders re-open and there is an influx of workers needing accommodation."
The budget includes $750 million to build around 3,300 public homes. "This is positive, but it will put pressure on the already stretched building industry, notwithstanding the government's prioritisation of pre-fabricated and alternative means of construction."
The budget commits $750 million to a Climate Action Fund designed to address the threat of climate change. "We commend the WA government for making a significant commitment to building an environmentally sustainable economy."
