Budget crisis: Treasurer Mike Nahan defends WA Government’s iron ore predictions

UPDATE: AFTER vowing never to preside over a deficit Budget, Premier Colin Barnett admitted he may have to break his promise as iron ore prices plummet.

A haul truck is loaded by a digger with material from the pit at Rio Tinto Group's West Angelas iron ore mine in Pilbara, Australia, on Sunday, Feb. 19, 2012. Rio Tinto Group, the world's second-biggest iron ore exporter, will spend $518 million on the first driverless long-distance trains to haul the commodity from its Western Australia mines to ports, boosting efficiency. Photographer: Ian Waldie/Bloomberg

AFTER vowing never to preside over a deficit State Budget, Premier Colin Barnett today admitted he may have to break his promise in the wake of plummeting iron ore prices.

Mr Barnett told State Parliament he could not guarantee this financial year’s State Budget would be in surplus.

“Can I guarantee a surplus: no I can’t,” Mr Barnett said, following questioning from the Opposition.

Premier Colin Barnett

“Is that surprising?

“Can I guarantee a surplus when the price of iron ore has fallen 40 per cent?

“No I can’t.

“But I can point to a record of surpluses every year (since coming to government in 2008).

“We will do all that we can to achieve a surplus this year.

“It is going to be extremely difficult.

“The treasurer is absolutely right.”

Treasurer Mike Nahan said yesterday budget surpluses could not be guaranteed after the price of iron ore this week fell to below $80 a tonne.

Iron ore royalties had underpinned the May State Budget, with Treasury forecasting iron ore prices would be $122 a tonne.

Every $US1 a tonne fall in the iron ore price costs the budget about $45 million.

The government yesterday announced a better-than-expected result for 2013-14, with a $719 million operating surplus, instead of the forecast $183 million.

Mr McGowan said today Mr Barnett’s financial credentials were in tatters.

“Mr Barnett has staked his job on the line about delivering surpluses,” Mr McGowan said.

“There is record revenues and tax collections.

“To head into deficit is another broken promise.”

Standard & Poor’s and Moody’s Investors Service had previously downgraded WA’s credit rating from AAA, citing mounting debt.

Treasurer Mike Nahan defends iron ore predictions

EARLIER today, the WA treasurer defended his government’s optimistic outlook for the state’s most valuable export commodity in the past financial year, saying iron ore prices are “bloody hard” to predict.

WA Treasurer Mike Nahan.

Audited government figures released this week showed a better-than-expected surplus for 2013/14 and a trimming of the state’s substantial debt.

But after the iron ore price dropped about 40 per cent, Treasurer Mike Nahan conceded the budget outcome was “far below” what the government had forecast.

“It’s a bloody hard thing to predict,” he told 6PR today.

“I’m not an expert on it and I think politicians should be very, very careful about making predictions on iron ore prices.”

The treasurer said if the iron ore price continued at about $US80 per tonne, the state would lose five per cent of its revenue in the current financial year.

“That’s a big gap, a big challenge,” he added.

Dr Nahan said the government’s expenditure review committee and cabinet had been working to address the issue since July, when iron ore prices dipped below $US100/t.

But taxpayers won’t find out what the government plans to do to make up the revenue shortfall until the mid-year budget review is released in December.

Iron ore prices have now dropped to below $80 a tonne — compared to predictions in the May budget of $122 a tonne.

Opposition leader Mark McGowan criticised the Liberal-led government’s budget management.

“It’s been the worst financial management in the history of the state,” he told 6PR.

The Labor leader said the government should have been more conservative when forecasting the iron ore price for 2013/14.

“They put in a figure that over-estimated the price, therefore pumping up the finances in future years, and they were warned by numerous organisations it was overly optimistic,” he said.

Originally published as Budget crisis: Treasurer Mike Nahan defends WA Government’s iron ore predictions