2024-25 Government Mid-year Financial Projections Statement will show the election plan
The Hon Dr Steve Thomas is pleased to provide this analysis of the upcoming 2024-25 Government Mid-year Financial Projections Statement, also called the Mid-year Review, due to be released this week. The work presented here is to inform the media and can be used for background or quoted as desired.
2024-25 Government Mid-year Financial Projections Statement will show the election plan
The Mid-year Review will show yet another significant budget surplus this year as the price of iron ore holds up above expectations.
In the 2024-25 budget predicted an average iron ore price of US$75 this financial year, but the actual average to date this financial year is US$101. This means revenue is already $1.2 billion higher than budgeted in May.
That would normally mean the expected budget surplus would rise from $2.6 billion to $3.8 billion, but this is not a normal period.
The Government cannot be seen to do what it has done since the boom started nearly six years ago – keep filling its money bin with more and more spare cash – with an election so close.
Obviously, the Government wants to spend as much of this windfall as possible but identify that spending as “Government expenditure” not election promises in the lead up to the 2025 election. Otherwise, other political parties could use the mountains of money the Government has received for their own election commitments.
That way their election commitments “spendometer” looks low and modest, and they will use this to claim that they are good financial managers. New spending initiatives need to be examined carefully (I know I will be doing so).
Massive Government infrastructure spending is driving up housing costs and must be reined in
Every person trying to build a house is competing with the Government and the mining sector for workers and materials.
Thanks to the mining boom and mountains of cash rolling in from iron ore royalties the state government moved its average infrastructure spend from $5 billion to $10 billion, and then to $12 billion a year.
At the start of the current mining boom (and thanks to it), the mining sector told us that they needed 40 000 new workers in Western Australia to meet their expansion needs.
The mining sector and the Government had bottomless pockets and could pay whatever the cost increased to.
The third part of the construction economy is the poor person who is trying to build a house. They simply cannot compete with the government and the mining sector, which is why houses took twice as long to build as they used to and cost a lot more, and also why many builders went bust.
This state reversed Keynsian economics, which states that Government should step up and spend when times are bad, but step back when the private sector is going well.
The problem will be that when iron ore corrects back to normal prices, the private sector will drop in line with the reduced income. A Government that has already spent all the boom income will have to step back as well.
The Government’s own figures indicate that their capital works budget is still twice the long term average. This means housing costs will remain high and keep growing.
Billions of dollars are still squirreled away in special purpose accounts
This is where the Government has hidden some of the boom income. This will now have to start coming out. Some of the new accounts set up by this Government since 2017 and their balances as at the 1st of July 2024 include:
Strategic Industries Fund : $500 million
Climate Action Fund : $680m million
Digital Capability Fund : $430 million
Social Housing Investment Fund : $700 million
Softwood Plantation Expansion Fund : $250 million
Westport Account : $322 million
Remote Communities Fund : $295 million
Asset Maintenance Fund : $240 million
There are other special purpose accounts, but these holding accounts I have listed are carrying $3.4 billion in funds squirrelled away for the Government’s agenda.
At the end of the 2023-24 financial year aggregate Treasury Special Purpose Accounts were $2.3 billion higher than the previous year.
This money will need to be used to maintain Government spending during the upcoming economic correction when iron ore prices return to normal.
Billions more are hidden in retained GTE dividends
“The Government has been storing up another mountain of cash during the boom of the last five years in retained earnings of the Government Trading Enterprises (GTEs).
During the biggest boom in our state’s history the GTEs have been told not to pass the normal dividends to the State Government in four of the last five years.
This has meant that billions of dollars have not been recorded as State Government revenue and therefore not included in the already massive annual surpluses.
If they had been included as normal the $6 billion annual surpluses would have ended up as $7 billion annual surpluses.
By keeping those revenues “off the books” the Government has also amassed another money bin of cash to spend in the lead up to the election next year.
The biggest earner amongst the GTEs is the Water Corporation, which at the end of the 2023-24 financial year had $7 billion in cash sitting in their piggy bank as retained earnings that should have gone to the Government.
Some of that money is set aside for Perth’s new water source, which is the Alkimos Seawater Desalination Plant (ASDP). You should look for that expenditure in the mid-year review.
The Government announced a year ago that the ASDP was funded at $2.8 billion.
That still leaves $4 billion of retained dividends sitting in Rita Saffioti’s money bin unaccounted for. I would expect as much as possible will be allocated this week.
That money belongs to the people of Western Australia, not the Government, and it should be properly accounted for.
