Do as we do on debt, WA Premier Mark McGowan tells rivals

The growing debts of NSW and Victoria will leave those states facing a ‘very difficult situation’ as the world heads towards a global recession in the coming year, Mark McGowan has warned.

WA Premier Mark McGowan. Picture: NCA NewsWire / Philip Gostelow

The growing debts of NSW and Victoria will leave those states facing a “very difficult situation” as the world heads towards a global recession in the coming year, West Australian Premier Mark McGowan has warned.

Mr McGowan, who is also the state’s Treasurer, on Thursday used a mid-year financial update to unveil a slightly higher than ­expected operating surplus ­despite softening iron ore prices and an increase in public sector salaries.

WA retained its status as the only state recording operating surpluses and paying down debt, and it is now expecting to record a $1.8bn operating surplus this ­financial year. That’s an improvement on the $1.6bn original target but down from the record $6bn ­recorded last financial year.

The latest forecast surplus will help the state reduce its debt to $29.6bn by the end of June, $1.5bn lower than originally budgeted.

Mr McGowan said the debt ­reduction came despite his government spending $11bn on its Covid response over the course of the pandemic, and would leave the state well placed to deal with future uncertainties.

He noted that NSW and Victoria had recorded a significant climb in debt in recent years.

“Their position is diabolical and I do not want Western Australia to get into their position, ­because they will have to do very harsh things if they’re ever going to turn their states around,” he said. “By being cautious and careful and budgeting prudently, you can avoid dramatic outcomes in the future, which I suspect are just around the corner in those states.”

NSW has been spearheading complaints from the rest of the country about WA’s current share of the GST, which increased dramatically off the back of a deal struck between Mr McGowan and the then-Coalition government in 2018.

That deal has guaranteed that WA retains at least 70c of every dollar of GST revenue it raises, a floor that has pumped billions of extra dollars into the state each year while it has continued to reap record royalties from the booming iron ore industry.

“They will have to pay an ­enormous amount on interest, which is dead money that isn’t going into health or education or police or environment and roads,” he said.

“That’s a very, very difficult situation that they are facing.”

The price of iron ore has fallen from more than $US160 a tonne earlier this year to less than $US110 a tonne today, eroding WA’s key source of income.

Mr McGowan said the global economy was heading for a difficult period, with indicators of ­Chinese property construction – a key driver of iron ore markets – pointing to a “fairly stark decline in activity”.

Opposition Treasury spokesman Steve Thomas described the mid-year review as the most misleading economic plan he had seen, arguing that the state could have done much more to ease current cost-of-living pressures.

“The Premier keeps warning us all of impending recession around the world in order to dampen down demands that he spend his amassed riches from multiple $6bn surpluses on the needs of the community today and to provide better services, ­instead of saving it for his own pet projects and election sweeteners to ensure his political future,” Dr Thomas said.

The better than expected surplus projection comes as the McGowan government continues its fight with unions representing the state’s police and nurses over an increase to wages.

Mr McGowan said the smaller size of this year’s surplus, compared to the $6bn surplus from last year, showed why the state could not improve on its current offer.

“As the budget shows, the ­financial situation is deteriorating,” he said.

“I don’t want us to end up in the terrible financial position of other states like NSW, I want to be able to protect us from that whilst providing generous pay increases for people.”