Pilbara mines supplying Asian steel mills are expected to deliver $9.3 billion in royalties to WA this financial year but the budget delivered on Thursday assumes this will plummet to $6 billion in the 2023 to 2024 financial year.
When one commodity delivers 21 per cent of a state’s budget as iron ore has done this year a wrong assumption can quickly unbalance a budget.
McGowan said he did not want to be caught out and see his projected $3.3 billion surplus turn into a deficit.
“What the last government did,they forecast heroically on the iron ore price and spent accordingly,” McGowan said.
While iron ore fetched an average of $US112 a tonne this financial year the budget assumes just $US74 a tonne for the 12 months from July and a lower $US66 for the following three years.
The federal government’s Tuesday budget was even more conservative,assuming an iron ore price of $US60 a tonne this coming financial year before dropping to $US55.
Given the state’s reliance on one volatile commodity price,unsurprisingly McGowan listed economic diversification as a priority with almost $30 million allocated to infrastructure to support new projects.
This year’s strong wage growth of 4.0 per cent is expected to only slightly dip next financial year and slowly dip to 3.0 per cent by 2026.
Unemployment of 3.5 per cent is expected to jump 0.5 per cent next financial year when wages are predicted to rise by 4.0 per cent.
Investment in resource projects and housing is being held back by labour shortages and supply chain bottlenecks.
However pressure on housing is likely to remain with the WA population expected to grow by 56,000 this financial year.
Despite the demand,spending on housing construction crashed 8 per cent in 2022 due to labour shortages but is expected to partially recover next financial year with a 6.5 per cent rise.
Once the backlog created by COVID-era incentives is worked through,housing spend is expected to fall 7.8 per cent in the 12 months from July 2024.
Export volumes are expected to be stable as most investment has gone into maintaining production levels.
The state’s economy will take a small hit as tourism returns to pre-pandemic levels and Western Australians leave caravans purchased a few years to venture out of the state.
Treasury expects economic growth measured as gross state product now running at a nine year-high of 4.25 per cent to drop to 2.25 per cent this financial year.