US ratings agency out with a few thoughts on the latest WA budget forecasts released earlier 12 May 2016
- widening WA budget deficits projected for FY 2016/17 and over the medium term are credit negative
- fiscal deterioration reflects significant slowing in economic growth, having more drag on tax revenues than expected
- efforts not sufficient to stem budgetary gaps which ultimately will lead to further increases in its debt burden
Say Moody's:
"The budget also updated results for FY2015/16, with the deficit now estimated to be AUD2.9 billion, or 11.0% of revenues, which is better than the budgeted deficit of 13.8% and the mid-year estimate of 16.2%. The improvement reflected a 1.6% drop in current expenditures compared to budget, while revenues exceeded budget by 0.6%. While revenues were supported by a one-time capital grant of AUD490 million, they also benefited from increased royalty revenues largely due to higher than expected iron ore prices since the Budget, which offset much lower-than-anticipated payroll tax, conveyancing duties and other taxes.
The state government responded to the poor revenue performance with some important expenditure measures earlier this year, primarily a policy that limits upward annual salary adjustments to 1.5% and an expansion of agency reviews to all departments, supporting its goal of moving into a surplus position equal to 3.4% of revenues by FY2019/20. The state is also contemplating asset sales, including the sale of Western Power and the transmission network, along with several ports which, even though one-off in nature, could ease the expected accumulation in debt.
The projected improvement in the state's financial performance will rely to a large extent on a strengthening in the state government's resolve to lower current expenditures, particularly as the growth in revenues is not expected to return to the more robust pace seen in earlier years, given slower economic growth as the economy transitions from a reliance on mining investment to production and related exports.
Achieving an average growth rate in expenditures of 2.4% over for the four years through to FY2019/20 will be difficult, given the elevated spending patterns seen in the past. We note, however, that progress has been made in recent years with current expenditures rising by a relatively low 2.2% in FY2014/15 and an estimated 2.5% in FY2015/16 which is encouraging. Critical to achieving lower expenditure targets will be reducing the pace of growth for health expenditures to 3.2% over the next four years -- compared to 6.6% over the last four years -- and adhering to the policy of keeping annual public sector salary rises to 1.5%."
Not helping the Aussie $ as it tests recent lows below 0.7330
Full WA budget release here
