WA state budget: Mark McGowan says $5.6bn surplus vindicates tough borders

Mark McGowan has unveiled the biggest surplus in WA’s history, claiming his zero-Covid policy allowed the economy to boom.

West Australian Premier Mark McGowan in parliament in Perth on Thursday. Picture: Tony McDonough

Mark McGowan has unveiled the biggest surplus in Western Australia’s history, claiming his state’s zero-Covid policy allowed the economy to boom as Scott Morrison urged him to “push through’’ and embark on the difficult task of living with the virus to reunite the country.

Fuelled by a $11.3bn wave of iron ore royalties, the WA Premier, who appointed himself Treasurer after his government was emphatically re-elected earlier this year, unveiled a $5.6bn ­surplus, with more than $1.9bn in extra spending on the state’s struggling health system. Mr McGowan warned the biggest risk to the state’s economic health was a NSW-style Delta outbreak and signalled that borders with infected states would remain closed into next year, possibly as late as April, until vaccination rates rose above 80 per cent.

But the Prime Minister praised NSW Premier Gladys Berejik­lian’s plan to open the state up in mid-October when vaccination rates hit 70 per cent and said WA residents would want to follow suit. Mr Morrison argued Mr McGowan was “underselling” the desire of West Australians to reconnect with the world. He said most West Australians would be vaccinated before the new year and the state would be able to open up sooner than the April date flagged by Mr McGowan.

“I have a bigger confidence in Western Australians about their wanting to re-engage with the rest of the country and the world, as Western Australians look out, they don’t look in,” Mr Morrison said.

“And I know Western Australians will be keen to move on and get on. That’s the Western Australian spirit.”

The hefty budget surplus has left Mr McGowan preparing for a renewed fight over his state’s share of the GST, with rival states that have suffered financially from the pandemic pushing for a review into the current carve-up to be brought forward.

WA is guaranteed to keep at least 70c of every dollar of GST it raises under a deal struck in 2018 between the McGowan and Turnbull governments. The floor is worth billions of dollars a year to WA, and will add more than $4bn in extra funding to the state in 2023-24 when its share of GST revenues would have fallen to just 10c in the dollar under the old ­system.

The state’s GST share is forecast to climb sharply in the coming years, from $3bn in 2020-21 to more than $6.5bn in 2024-25.

While Mr Morrison has ­already ruled out any changes to the GST formula, Mr McGowan said he was ready for other states to try to grab back some of WA’s share. A review of the amended GST system is slated for 2025, but other states have begun agitating for this to be brought forward.

Mr McGowan said states ­unhappy with WA’s GST deal only had themselves to blame. “They will be wildly angry and they’ll be wanting to undo the GST deal, because they failed to budget properly. NSW failed to manage Covid and so they will want us to pay,” he said.

NSW Treasurer Dominic Perrottet said the GST formula ­needed to be examined urgently. “I thought it wasn’t possible to make the GST formula worse, but somehow we achieved that,” he said. “The no worse-off clause is temporary and a short-term solution to a much greater problem with far-reaching and long-term implications. It needs more than a tinker. It needs substantial change and the sooner that occurs the ­better.’’

Victorian Treasurer Tim Pallas said WA had benefited from the political manipulation of the GST at the expense of Victoria and ­others. “Victoria led the charge against the 2018 GST changes and while the federal government ignored our objections in favour of a political fix in the West, we did work with other states to secure a ‘no worse off guarantee’’, Mr Pallas said.

“We need the federal government to commit to making the ‘no worse off guarantee’ permanent and the federal Treasurer – who is a Victorian after all – should stop manipulating the GST methodology against his own state.”

The Prime Minister on Thursday said he would not change the GST allocation to WA and that the state had to invest in health and hospitals.

“A deal is a deal. For too long, Western Australia got the rough end of the stick on GST allocation. My government fixed it and my government will protect it,” he said.

“It is vital that the additional resources secured by the federal government for WA be invested in the services that Western Australians rely on, especially hospitals and public health, as we seek to prepare Western Australia to live with Covid-19 and re-engage with the rest of the country and the rest of the world.”

While the WA budget follows the federal government’s lead in modelling a reopening of international borders by September next year – which Mr McGowan warned would have a “dramatic” negative impact on the Australian economy – there are no provisions for an easing in domestic restrictions.

The closure of WA’s border to states like NSW and Victoria, he said, had a negligible impact on WA’s economy.

“The real impact is if we have an outbreak. The budget says throughout it that avoiding an outbreak is the most important thing we can do,” he said.

He said the financial strength of WA was supporting the parts of the country grappling with the impact of Covid-19.

“Look at NSW and Victoria, it’s terrible in a health sense and it’s terrible in an economic sense. I want us to avoid that and so far we have,” he said.

“While they don’t understand that and they don’t appreciate it, everything that’s happening in our state – with no lockdowns and everything open – is driving the nation and supporting them all financially and economically.”

The budget windfall will help fund $1.9bn in additional spending on WA’s health system, which has been under increased pressure this year despite no major Covid outbreaks in the state.

It has also committed $1.4bn towards the state’s next water desalination plant, and $875m more on social housing.

Mr McGowan flagged that a controversial cap on public sector pay increases – which capped individual rises to $1000 a year – could potentially end a year ahead of schedule given the health of the state’s finances and the signs of labour shortages.

The $5.6bn operating surplus posted for 2020-21 is more than double the previous biggest surplus in WA history, namely the $2.6bn recorded in 2005-06.

WA expects to deliver a cumulative $9bn in operating surpluses over the next four years, despite Treasury factoring in a pullback in iron ore prices to just $US66 a tonne. Iron ore prices spent much of the past year above $US200 a tonne and are currently above $US130 a tonne.

The strength in WA’s economy, which has the lowest ­unemployment rate in the country at 4.6 per cent, has prompted the government to delay more than a dozen major infrastructure projects by a year in an attempt to smooth out the pipeline of work.

ADDITIONAL REPORTING: YONI BASHAN, RACHEL BAXENDALE, RICHARD FERGUSON