BUDGET BRIEFING 2014

@ipaawa #2014BudgetBriefing

2014 – 2015 WA State Budget Dr. Simon Avenell Partner & PwC WA Government Leader PwC Perth

@ipaawa #2014BudgetBriefing

PwC

Context – A long view of the WA economy

2014-15 State Budget 3

May 2014

Total Australian population divided by WA population

1900 1930 1960 1985 2014

21 15 14 11 9

Source: ABS

PwC

Context – Projections for economic growth are bullish

FY15 State Budget 4

May 2014 Source: RBA

PwC

Context – Strong recent WA population growth

5 May 2014 FY15 State Budget

Source: ABS

0

5,000

10,000

15,000

20,000

25,000

30,000 Ju

n-81

O

ct-8

2 Fe

b-84

Ju

n-85

O

ct-8

6 Fe

b-88

Ju

n-89

O

ct-9

0 Fe

b-92

Ju

n-93

O

ct-9

4 Fe

b-96

Ju

n-97

O

ct-9

8 Fe

b-00

Ju

n-01

O

ct-0

2 Fe

b-04

Ju

n-05

O

ct-0

6 Fe

b-08

Ju

n-09

O

ct-1

0 Fe

b-12

Ju

n-13

Western Australia – Contributions to Quarterly Population Change (number)

Natural increase Net overseas migration

Net interstate migration

Western Australia – Population 2008 to 2013

Sept 2008 2.19m

Sept 2013 2.54m

Increase 16%

CAGR 3%

PwC

Estimates

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

General Government – Revenue and Expenses ($ million)

Revenue Expenses

Expense growth is placing pressure on the Budget

FY15 State Budget 6

May 2014 Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Estimates

0

500

1,000

1,500

2,000

2,500

3,000

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

General Government – Net Operating Balance ($ million)

Net operating balance flat

FY15 State Budget 7

May 2014 Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Estimates

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

Asset Investment Program ($m)

… and the need for infrastructure is driving increasing debt

FY15 State Budget 8

May 2014 Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Capital expenditure changes

FY15 State Budget 9

May 2014

• AIP lower due to completion of major projects, project delays

• A 5% reduction in the infrastructure programs of most agencies

• Additional AIP spending approved as part of the Budget includes:

− $147 million on school and State Training Provider infrastructure

− $113 million for Western Power in 2013-14 and 2014-15 to address safety priorities

− $85 million for major health infrastructure

• There is also the $1.6bn Roe Highway extension announced in the Commonwealth budget to be funded three ways, Federal, State and private

Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Revenue side changes

Revenue measure include:

• End to private motor vehicle registration fee concession ($189m)

• The Perth Parking Levy will increase by $365 ($73m)

• First home buyer transfer duty concession adjustments ($222m)

• An increase in land tax rates ($334m)

• Interim dividend for the State’s port authorities (FY15 $93m )

• Landfill levy increase ($202M)

Total impact

• $289 million in FY15

• $1,136 million across FY15 to FY18

FY15 State Budget 10

May 2014 Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Large agency expenditures grow in this budget

FY15 State Budget 11

May 2014

FY13 $b (%)

FY14 $b (%)

FY15 $b (%)

FY16 $b (%)

FY17 $b (%)

FY18 $b (%)

Health 6.9 (10.1%) 7.5 (8.7%) 8.0 (5.7%) 8.2 (3.4%) 8.5 (4.2%) 8.6 (0.7%)

Education 6.2 (4.8%) 6.5 (5.8%) 6.8 (5.2%) 7.2 (5.8%) 7.5 (4.0%) 7.9 (4.2%)

Public order and safety 2.9 (-2.4%) 3.1 (4.8%) 3.2 (3.7%) 3.3 (4.4%) 3.5 (4.0%) 3.5 (1.1%)

Other 9.5 (0.5%) 10.7 (12.9%) 10.5 (-1.5%) 11.1 (5.5%) 11.6 (4.0%) 11.9 (3.1%)

Total 25.5 (3.7%) 27.8 (9.1%) 28.5 (2.6%) 29.9 (4.9%) 31.1 (4.1%) 31.9 (2.5%)

Expenditure program changes – Actual and percentage change from previous year

Source: 2014-15 State Budget – Budget Paper No. 3

PwC

Estimates

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0

2

4

6

8

10

12

14

16 20

02-0

3

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

Real Per Capita Revenue and Revenue as a Share of GSP

Real per capita revenue ($) - RHS

Revenue as a share of GSP (%) - LHS

While Government’s capacity to pay for services is static

FY15 State Budget 12

May 2014 Source: ABS and 2014-15 State Budget – Budget Paper No. 3

PwC

Estimates

And revenue composition changes introduce volatility risk

FY15 State Budget 13

May 2014

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-15

2015

-16

2016

-17

2017

-18

General Government Operating Revenue ($m)

Other Interest income

Sales of goods and services Current grants and subsidies

Taxation revenue

Source: 2014-15 State Budget – Budget Paper No. 3

PwC

This increases the importance of budget assumptions

FY15 State Budget 14

May 2014

Assumption (FY15) Current rate Volatility

(last 12 months)

Exchange rate (US cents per AUD) 90.6 94.01 87 to 104

Iron ore price1 ($US per tonne) 122.70 103.50 103 to 142

Source: 2014-15 State Budget – Budget Paper No. 3; RBA current exchange rate 14 May 2014 and historical data; MacroBusiness iron ore spot price at 14 May 2014 and historical data.

1 Headline spot price minus the cost of freight

PwC

Small changes can make a big difference

FY15 State Budget 15

May 2014

For each US1 cent change in exchange rate:

-/+ $80 million revenue change

For each $US1 per tonne change in the price of iron ore:

+/- $49 million revenue change

Source: 2014-15 State Budget – Budget Paper No. 3

PwC

So can big changes!

FY15 State Budget 16

May 2014 Source: Commonwealth 2014 Budget Overview

0

5

10

15

20

25

30

35

40

45

FY13 FY17 FY21 FY25 0

5

10

15

20

25

30

35

40

45

FY13 FY17 FY21 FY25

Changed Commonwealth spending arrangements for schools and public hospitals

Old spending arrangements

New spending arrangements

Old spending arrangements

New spending arrangements

$billion $billion Schools Hospitals

PwC

Overall …

FY15 State Budget 17

May 2014

• Structural issues not yet addressed

• Perhaps positioning to do so

− Fiscal action plan

− Redundancy programs

− New wages policy

− Asset sales program

• Increased volatility exposure on revenue side

• Interesting times ahead in Commonwealth State relations

Done

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