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State Budget 2021 – 2022: The numbers that matter

Still riding high following March’s election landslide, Premier Mark McGowan today handed down his first Budget in his dual role as the State’s Treasurer. While most of the country remains in lockdown, and Western Australia may be locked to them, we’re anything but down. The surplus is in a word, up, and all economic indicators have improved since the 20-21 Budget. 

In handing down the Budget, Premier McGowan took the opportunity to remind us, that ours is not only the strongest economy in Australia, but one of the strongest in the world.  

With this Budget, he outlined his plans to reinvest some of the windfalls of the past year in the State’s future services and infrastructure. 

An ironclad result 

WA reported a massive surplus of $5.6 billion in 2020-21, $4.4 billion more than forecast in the previous Budget.  

Everyone knows money doesn’t grow on trees, but as every Western Australian does know, it is dug out of the ground.  

The iron ore price averaged $154.5 per tonne in 2020-21, or around 58% more than the previous Budget’s assumption of $99.6 per tonne.  The increased royalties as a result of such a high price were the main driver for the almost 25% increase in the State’s revenue in the past year.  

Although Premier McGowan was at pains to point out that all revenue sources experienced growth during the period, royalties remained the main game.  

Credit must be given to the McGowan Government’s management though, as expenses can easily run away in line with revenue growth. However, expenses growth was kept to just over 13%. While this may seem high, it is still significantly lower than revenue growth. 

Budget assumptions

So where to from here? The State Budget is forecast to remain in surplus to the tune of $2.8 billion in 2021-22 and we should enjoy surpluses of between $1.5 and $2.8 billion over the forward estimates. But of course, this is all predicated on an iron ore price of $121.3 per tonne in 2021-22 and $66 per tonne over the forward estimates. Anything over this will see larger surpluses continue – and vice versa. 

The 2020-21 Budget was handed down in October 2020 while we were still in the midst of the pandemic, and without any clear picture of vaccines. Economic forecasting is challenging at the best of times, but with that much uncertainty it is nigh on impossible. So, it is no surprise that assumptions have been revised since the last Budget.  

  • Gross State Product grew by 3.25% last year, and is forecast to increase to 3.5% this year, before dropping back to 1% and 1.5% in the out years; 
  • Employment growth in 2020-21 was significantly higher than assumed at 1.7% (1.95% more than the assumed –0.25%). It is expected to significantly increase in 2021-22 to 2.50% before stabilising at 1.25%-1.5% over the forward estimates;  
  • The 2020-21 unemployment rate was lower than expected back in October last year at 6.1% (8% last year). It is forecast to drop again in 2021-22 to 4.75% and to remain at 4.5% until 2024-25; and 
  • Wages growth has been revised up but not by much. It is forecast to be 2.25% in 2021-22 and 2022-23 before rising to 2.5% in the following two years. 

Household and business charges

For WA households the news is mixed. 

After cutting the average cost of the household basket of fees last year, electricity and water charges will increase across the forward estimates, however, they will be capped in line with the rate of inflation. 

This delivers on an election commitment and comes at a cost of $397 million. 

The Government has scrapped the $600 household electricity credit, and families can expect to pay $6381.91 for the average basket of household fees and charges in the year ahead. This is a 1.6% increase compared to the last financial year. 

In other increases, the motor vehicle license charge will rise from $384 to $399 and the Emergency Services Levy will be up from $271.47 to $283.09. 

There is some good news for families who live in the outer suburbs and commute regularly, with the introduction of a two-zone fare cap on all Transperth fares from January 1 next year. 

Resources & Energy 

Resources  

WA iron ore royalties are keeping the nation afloat. 

In handing down the Budget, Premiere McGowan was unequivocal in his message to the Commonwealth, and other states and territories – the whole lot of them are riding on the back of Western Australia’s mining royalties – royalties sustained by the State’s decisive management that allowed the sector to continue operating pretty much uninterrupted through the pandemic to-date. 

While all that is reasonable and true, the Premier is also alert to the risks for both the State and the nation, as the iron ore price has proved highly volatile in both directions over the past 12 months, surging as high as $233 per tonne, before shedding almost $100 back to its current position of about $135 per tonne. 

With those swings, also goes our ability to plan for additional major, permanent recurrent spending in the State. As the Premier put it, WA’s economy is structurally different to any other and our cousins on the eastern seaboard should think on this before calling into question our ongoing share of the GST funding pool, for example, just because we strung together a few good years. 

WA collected $11.3 billion in iron ore royalties in 2020-21, up from $7.6 billion in 2019-20. The forecast for the collection plate in 2021-22 softens slightly to $9.1 billion, but then drops from that point to around $5 billion across the forward estimates.  

However, there is some risk here on the immediate horizon. While the State held its line in 2019-20 before shooting the lights out in 2020-21 – essentially by holding its forecast iron ore royalty rate assumption in those Budgets below $100 per tonne; the 2021-22 forecast relies on a higher iron ore price at an average $121.3 per tonne. 

While that is entirely possible, it is also slightly bullish given current trends.  

We absolutely do need to make hay while the suns shines.  As the Premier knows, it will not last forever, evidenced by the iron-ore price forecasts dropping to a flat rate of $66 per tonne across the forward estimates from 2022 onwards. 

In the Premier’s words: “This is what responsible financial management looks like. In Western Australia we must assume the worst, plan for surpluses and retain the capacity to respond to whatever the world throws at us…”.  

Contributions from other commodities 

Royalty income from all other commodities (excluding iron ore) is expected to rise by $137 million (or 16.8%) to $952 million in 2021-22, largely due to higher lithium and nickel royalties – tied to forecast demand increases in line with projected take-up of electric vehicles globally. 

Lithium spodumene (concentrate) and nickel prices have been revised up in 2021-22 to $US600 per tonne and $US19,328 per tonne respectively. 

Royalty income from other commodities combined is projected to decrease by $33 million in 2022-23, largely driven by declining volumes for gold and copper as some mines approach the end of mine life.  

Energy  

Some of the Budget surplus is to be used to hasten the State’s transition to a cleaner energy framework and put climate action front and centre in its policy settings. 

The headline initiative is a $750 million Climate Action Fund, designed to foster a new hydrogen industry for WA, support renewable energy projects mainly in remote off-grid systems and get the State along the path of manufacturing renewable energy components such as wind turbines, and batteries. 

The Budget also confirmed Synergy is on track to close two of its large coal-fired units at Collie in the next three years, further reducing the State’s carbon footprint and moving towards net zero emissions by 2050. 

To facilitate and accelerate the development of the hydrogen and renewable energy sectors, the Budget has earmarked funding of $61.5 million. This is made up of: 

  • $50 million to stimulate demand for renewable hydrogen;  
  • $7.5 million for the development of the Oakajee Strategic Industrial Area as a renewable hydrogen hub; and 
  • $4 million for the Renewable Hydrogen Unit within the Department of Jobs, Tourism, Science and Innovation. 

Other energy initiatives in the Budget include: 

  • $15 million for the Carbon Innovation Grants program; 
  • $13 million for the Household Energy Efficiency Scheme; and 
  • Establishing the Energy Industry Development Team under Energy Policy WA, to work with local manufacturing to assist transition to renewable energy in the remote mining sector.

Education and training 

Science, technology, engineering and mathematics (STEM) is seen as the pathway to future jobs and this Budget has a heavy focus on these subjects with over $87 million allocated to upgrading STEM facilities. Additionally, more than 400 schools will benefit from more than $18 million allocated to deliver quality STEM education in all public schools. 

The Budget also outlines plans for 100 more school psychologists and an expanded chaplaincy service to enhance student wellbeing. 

Vocational education and training (VET) provision provides our workforce with the skills to perform the jobs of the future and help the economy grow. In recognition of this, the 2021-22 Budget allocated $121 million to VET programs including: 

  • $29.8 million to provide 8,000 extra VET places for Year 11 and 12 students; 
  • $19.2 million VET career taster program for year 9 students; 
  • $32.4 million to get 300 new building and construction apprentices and trainees working on State Government projects; 
  • $25 million for state-of-the-art TAFE equipment; 
  • $9.9 million to support TAFE college lecturer industry placements; and 
  • $5.2 million to get 200 additional Western Australian apprentices over the age of 21 into quality training. 

Funding for Public Schools 

The Budget delivers $6 billion for Western Australian schools. This includes almost $450 million for construction of new schools and upgrades to existing school infrastructure, $104 million over four years for programs aimed at supporting student mental health and wellbeing and $170 million over four years to support children with disabilities. 

Health 

Investment in WA’s health sector remains a major focus of the 2021-2022 State Budget, with a total of $3.1 billion committed to address demand on hospitals and the health system. 

With the threat of a COVID-19 outbreak ever present, the Budget has committed $487 million to strengthen the State’s safeguards against the pandemic, including hotel quarantine and vaccination programs.  

$1.3 billion has been allocated to improving hospital facilities across the State including upgrades and expansions at Joondalup Health Campus, Fremantle Hospital, Bunbury Regional Hospital, Peel Health Campus, Geraldton Health Campus, Laverton Hospital, Tom Price Hospital and Newman Health Service.  

This includes $5.4 million towards planning and development of the new Women and Babies Hospital at the QEII medical precinct, with $1.8 billion committed for its future development. 

A $100 million emergency department support package has been set aside to address issues in the State’s emergency departments, with funding allocated to improve patient flow, reduce bed block and relieve ambulance congestion. This includes $24.6 million for new mental health emergency centres in Rockingham and Armadale. 

These investments are expected to deliver 332 additional beds across the State’s health system, supported by some 100 new doctors and 500 new nurses. 

Staffing shortages have also been addressed in the Budget, with graduate nurses and midwives employed in WA hospitals set to increase from 700 a year to 1,200 in 2022.  An additional 170 graduate nurses will be employed in COVID-19 response positions. 

The Budget committed $495 million to boost the Mental Health Commission, for mental health investments and 99 additional staff positions for Child and Adolescent Mental Health Service. 

Regional communities will benefit from a $19.7 million increase to the Patient Assisted Travel Scheme, with the subsidy increasing from $60 per night to $100 per night, and eligibility criteria allowing more people to access the service.  

The Royal Flying Doctor Service will receive $10.9 million to refurbish and replace aircraft engines; and women’s community health services, including women’s mental health, family, domestic and sexual violence will be established in the Kimberley and Peel regions. 

Additional measures 

Keeping in the ‘building for tomorrow’ theme, Premier McGowan is considering how to diversify WA’s economy. The time could be ripe to crack the State’s economic diversification riddle, and reduce our reliance on iron-ore, oil and gas – with genuine opportunity knocking in critical minerals (lithium, rare earths), renewable energy, supercomputing, the space sector and agtech. 

The Budget establishes a $100 million Investment Attraction and New Industries Fund aimed at diversifying WA’s economy and finding new opportunities in emerging industries – in addition to measures in the renewable energy and hydrogen sectors outlined above. 

The future of our native forests was also assured. This Budget outlines plans to protect the South West’s native forests from logging with effect from 2024, and to immediately protect 9,000 hectares of native karri. To ensure a reliable supply of forestry products and support jobs in the construction and forestry sectors, the budget has allocated $350 million over 10 years for new softwood plantations. This will provide an additional 33,000 hectares of softwood timber plantation consisting of up to 50 million planted pine trees. 

As well as a focus on the health sector, this Budget also tackles high-risk roads, crime, bushfires and shark attacks to keep Western Australians safe, including:   

  • More than $21 million allocated to fix black spots on Western Australian roads; 
  • An additional $35 million towards the construction of the Fremantle Police Complex. This is on top of $52.6 million already allocated to the project; 
  • A $38 million fire-fighting package including a new fire station in Perth’s South East ($14.5 million) and 36 additional fire fighters ($17.8 million); and 
  • A commitment of $12 million to provide certainty of funding for shark mitigation strategies out to 2024-25, including beach and aerial patrols, integrated communications systems and a jet ski response team. 

In good news for the nearly 17,200 Western Australians on the public housing waitlist, the Budget contains an $875 investment in social housing, the largest social housing spend in WA’s history.  This includes $228 million for short-term projects and $522 million to deliver new social homes from 2022-23. Funds allocated to social housing over the next four years will result in 3,300 more homes being delivered to vulnerable families. 

To read the budget in full, go to https://www.ourstatebudget.wa.gov.au/ 

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