2022-23 WA budget fast facts
Before we look forward to 2022-23, it’s also helpful to look back to what happened in 2021-22. That year’s budget forecast a surplus of $2.8 billion based on an iron ore price assumption of $121.30 per tonne.
After a surplus of $5.8 billion in 2020-21, the 2021-22 surplus is estimated to come in ever so slightly lower at $5.7 billion. This figure is clearly well above the previous forecast mainly due to a higher than forecast iron ore price over the last year
This resulted in net debt falling from $33 billion in 2020-21 to $30 billion in 2021-22. As Mr McGowan pointed out in his speech, this is the lowest debt since 2015.
Expenses growth was 12.5% in 2020-21, which can mainly be attributed to spending associated with health and economic support measures associated with COVID-19. For the 2021-22, expenses growth is expected to have slowed considerably to 5.5%.
Today’s budget forecasts a fall in surplus to $1.6 billion in 2022-23. However, this largely reflects Treasury’s appropriate and conservative forecast for iron ore prices. Surpluses are expected across the forward estimates ranging from $2.6 billion to $3.5 billion.
WA finds itself in a unique and enviable position to be returning surpluses when most governments are drowning in deficits and debt. Mr McGowan was quick to claim credit for the result citing our closed borders and COVID-19 management, keeping the resources sector open and the GST reforms as the main drivers for the surplus.
Despite the emphasis on reducing debt made during in the budget speech, net debt is projected to increase slightly to $31 billion in 2022-23 before rising to $34 billion by 2025-26.
Having said that, WA enjoys a very low level of debt compared to other jurisdictions, so this slight upwards trend is certainly not an issue.
Treasury maintains its conservative and appropriate approach to iron ore price forecasting as a means to buffer the Budget surplus from any blow out. For 2022-23, the budget assumes an iron ore price of US$77.5 before a reversion to the long run average of US$66 per tonne.
To put this in context, the iron ore price averaged an estimated US$139.5 per tonne in 2021-22 and is currently trading at around US$127 per tonne.
After growing by 5.25% in 2021-22 (measured by State Final Demand), we are forecast to grow at a slightly lower pace of 4% in 2022-23. This result is mainly driven by strong dwelling investment (12.5%), household demand (5%) and business investment (4.75%).
It’s no secret that unemployment is low at the moment – skills shortages have been highly publicised in the last 18 months or so. This trend is expected to continue with the budget forecasting and unemployment rate of 3.75% for 2022-23, down from 4% in 2021-22.