- Western Australia State Budget 2017-18
On 7 September 2017, WA treasurer Ben Wyatt delivered Labor’s first Budget in just over nine years.
Overall, the Western Australian economy is not in a very good state and the path to a surplus will not be an easy one, with tough decisions necessary to ensure the burden of fiscal repair is shared as fairly as possible across the community. Estimated financial results for 2016-17 show a general government operating deficit of $3 billion and total public sector net debt of $32.5 billion, with the net debt to revenue ratio at a staggering 83%.
Inequitable GST revenue distribution continues to be an issue from a WA perspective, with WA’s GST grant remaining at a near record low of 34.4% of its population share. The Government has announced it will continue its consideration of a State-based major bank levy in the absence of genuine GST reform or other revenue measures.
On a more positive note, following prolonged slowdown in economic growth over the past five years, the WA economy is beginning to show signs of recovery. GDP is forecast to grow by 3% in 2017-18, a significant improvement on the prior year’s 0.25% growth. This reflects continued strong growth in net exports and a “reduced drag” from business investment.
Employment is forecast to grow by 1.5% in 2017-18, with nearly 20,000 jobs expected to be created (even though public sector jobs will go, with redundancies planned). This will be supported by growth across a range of service-related industries, as well as agriculture and the gold and lithium industries.
However, government revenue estimates have been revised down by a massive $5 billion between 2016-17 and 2019-20. In response, the McGowan Labor Government’s Budget includes a $3.5 billion Budget repair package, which will be distributed across the community, including the public and private sectors. From a private sector perspective, the impact of the Budget repair package will be felt by large business – SME businesses should not be impacted directly by the Budget repair measures.
It is worth noting that the public sector is also making a significant contribution to repairing the WA State budget. Notably 3,000 jobs will go across government by means of a voluntary redundancy program. Furthermore, the State’s public corporations will also be required to contribute increased revenue by means of paying increased dividends to the State.
Even with the Budget repair package, the forecast general government operating deficit in 2017-18 is $2.3 billion, while total public sector net debt is expected to reach $43.8 billion by 30 June 2020, before reducing slightly by the end of the forward estimates period.
Speaking to the Government’s announced commitment to repairing the “unprecedented damage” done to the State’s finances by the previous Government, average annual expense growth is expected to be just 1.9%, and the economy is expected to be on track to a surplus of $1.3 billion in 2020-21.
Major announcements made include:
- $2.7 billion record budget towards improving and maintaining WA roads
- $1.3 billion for METRONET Stage 1 projects, including
- $535.8 million for the Thornlie-Cockburn Link
- $520.2 million for the Yanchep Rail Extension
- $508.2 million for an additional 102 rail cars
- $237 million for construction of the Armadale Road Bridge
- $129 million investment for at least 95 km of new cycling paths
- $1.25 billion for vital regional community infrastructure
- $826 million to improve the quality of health care for regional patients
- $591 million for job-creating projects in regional WA
- $463 million for regional rail, roads and ports
- $377 million to invest in regional schools, classrooms and training facilities
Other major announcements
- $741.2 million investment in health and mental health facilities
- $465 million towards new school builds, upgrades and redevelopments
- $425 million over five years towards Destination Marketing and Event Tourism
- $83.5 million for additional police and specialist staff for the Meth Border Force
The Budget introduces a number of new measures aimed at increasing revenue, including:
1. New Progressive Payroll Tax Scale for Large Employers
A temporary progressive payroll tax scale will apply from 1 July 2018 for a fixed period of five years. The new scale introduces a marginal tax rate of 6% (a 0.5% increase on the current rate) for payrolls above $100 million and a marginal tax rate of 6.5% for payrolls above $1.5 billion.
The effective tax rate will be adjusted for employers who also operate outside Western Australia or operate as part of a group, in order to ensure they pay the same effective tax rate on their Western Australian payroll as entities entirely based in Western Australia.
Importantly, this measure will not affect employers with Australia-wide, annual taxable payrolls of less than or equal to $100 million, impacting only the top 8% of payroll tax paying employers in Western Australia.
2. Foreign Owner Duty Surcharge
A new 4% foreign owner duty surcharge on purchases of residential property in Western Australia by foreigners (including individuals, corporations and trusts) will apply from 1 January 2019. This surcharge is limited to residential property, but excludes residential developments of ten properties or more, commercial residential property such as hotels, student accommodation and retirement villages, as well as mixed use properties that are used primarily for commercial purposes.
This measure will bring Western Australia in line with Victoria, New South Wales and Queensland, which currently apply a similar surcharge, and South Australia, which will apply a similar surcharge from 1 January 2018.
3. Point of Consumption Wagering Tax
This Budget introduces a point of consumption wagering tax from a target date of 1 January 2019, at a rate of 15% of net wagering revenue. This measure will replace all current wagering tax arrangements and apply to all forms of wagering.
The final commencement date of the consumption wagering tax and other details will be subject to the development of a nationally consistent approach to wagering taxation by the Council on Federal Financial Relations and the Department of Treasury’s consultation with industry stakeholders.
It is anticipated that this new tax will be structured similarly to South Australia’s current point of consumption wagering tax.
4. Gold Royalty Changes
The Government has decided to introduce a tiered gold royalty rate from 1 January 2018, which means the royalty rate paid by gold producers will be determined by the Australian dollar price of gold.
Specifically, the current 2.5% ad valorem rate will apply for each month when the gold price (averaged over the month) is A$1,200/ounce or less, and an increased rate of 3.75% will apply (on the full royalty value) when the price is above A$1,200/ounce.
At the current gold price, the increased royalty equates to approximately $20/ounce.
Further, from 1 July 2018, the gold royalty exemption on the first 2,500 ounces of production will be removed for mines producing more than 2,500 ounces per year. These changes are considered broadly consistent with recommendations from the previous Government’s Mineral Royalty Rate Analysis.