WA keeps on its toes as lockdown end nears
Western Australia (WA) has had among Australia’s best outcomes when it comes to the health aspect of the COVID-19 crisis, allowing it to project a target date for the lifting of all remaining social restrictions state-wide. Ben Wyatt, WA’s Perth-based treasurer, discusses the state’s economic response and outlook.
What sort of headroom did the state have coming into the crisis in the sense of capacity to support the local economy without immediately requiring a substantially increased borrowing requirement?
The government’s disciplined financial-management and budget-repair efforts over the past three years have put the state in a strong financial position, giving it the financial capacity and flexibility to respond to COVID-19.
Moody’s Investors Service confirmed in May that our efforts have put WA in a position of relative strength to respond to the current conditions and prepare for recovery on the other side.
Our responsible fiscal management has resulted in net debt being a massive A$9 billion (US$6.3 billion) less in the March 2020 quarter than forecast when we took office. This improved budget position has enabled us as a government to move quickly to put in place measures to support WA families and businesses as they have been affected by the COVID-19 pandemic.
Can you give highlights of the measures the state government has introduced to support the local economy through this crisis?
The impact of COVID-19 is being felt across the breadth of our economy. The WA government, like all governments in Australia, is looking for ways best to support households, businesses and community groups. We have to date announced more than A$2.3 billion in COVID-19 stimulus and relief measures for Western Australian households and businesses.
Key measures include a freeze on all household fees and charges in 2020/21, targeted energy subsidies for small business, charities and eligible households, payroll-tax reductions for small-to-medium businesses, low-cost liquidity loans for local governments and universities, commercial and residential rent support, assistance for affected sectors like hospitality and tourism, and a housing stimulus package to support the residential construction industry across WA.
Further announcements, including targeted investments in infrastructure, are expected to support the recovery of economic activity after the pandemic. More information can be found at www.mediastatements.wa.gov.au.
How significant is the forecast decline in revenue, and how significant is the state government’s own decision to freeze household tariffs, fees and charges?
Although mining royalty collections have remained relatively resilient, this is expected to be outweighed by declines in other sources of revenue, including GST [goods and services tax] grants, payroll tax, transfer duty, land tax, vehicle licence duty and agency own-source revenues.
While a high degree of uncertainty still exists, Treasury modelling indicates total general government revenue over 2019/20 and 2020/21 is expected to be approximately A$1.8 billion lower than previously forecast. The decision to freeze household fees and charges at 2019/20 levels will have a budget impact of A$402 million over the forward-estimates period, but this is an important step in reducing cost pressures on households.
Nevertheless, with WA state government revenue less reliant on the GST and transfer duties than other states, the WA budget is comparatively better placed to weather the impact of the slump in revenues from these sources.
Staying on revenue, what is the WA government seeing in the commodity sector as a consequence of the shock to global demand?
The commodity sector remains a key driver of activity for the local and national economies. The WA government’s decision to deem the mining sector an essential workplace in March has enabled this sector to continue to employ, mine and export commodities at a similar rate to pre-COVID-19.
This has allowed the sector to take advantage of strong prices for iron ore and gold in particular, supported by the lower-than-forecast Australian dollar-US dollar exchange rate. Strong export performance flows to the government in the form of royalties and payroll tax, and is essential in underpinning key domestic economic activity through employment, wages, household consumption and business investment.
How can WA exploit its relative good economic performance even as the overall trajectory remains weak?
The Q1 national accounts saw WA real state final demand rise 0.9 per cent in the quarter, which was the strongest of the states. The domestic state economy has grown in three of the past four quarters to be up 3.4 per cent year-on-year, which was also the strongest of all states and the fastest rate of growth since 2012.
Our March 2020 quarterly results – prior to the full impact of the social-distancing measures required to contain COVID-19 – showed that we were on track for our second consecutive budget surplus and a further reduction in net debt. I expect the full-year results to reflect a less positive set of financial and economic data, although there is ongoing uncertainty on the depth and duration of the effects of the pandemic on the global economy and how this will be felt across WA.
However, the results so far reinforce for me that the WA economy is more diversified – between mining, agriculture, services, manufacturing and construction – than some commentators might have appreciated, and we are thankful that not all these sectors have been adversely affected by COVID-19.
The parts of our economy that remain strong during this crisis are essential in providing us the platform to support the rebuilding of those sectors that have been adversely affected by COVID-19.
This platform includes underpinning our revenue base to support the capacity of government to respond to COVID-19, support for employment, and opportunity for the state to leverage the strengths of these industries to rebuild and grow new business opportunities.
WA is taking a conservative approach to reopening state borders even to domestic travel. Can you give an indication of the expected consequences for the state economy, for instance around lost tourism revenue, of a protracted hard state border closure?
Reopening the economy is a key priority for the government but must be balanced with protecting the health outcomes of our community. The whole world needs to find a way to live with COVID-19 while returning to an economy that is growing and supporting strong employment outcomes. It’s a tight balancing act.
However, the efforts of Western Australians to adhere to strict social-distancing rules and our hard state border closure has allowed us to fast-track the easing of restrictions and reopen sections of our economy to get businesses back in operation and get people back to work.
How is the state government thinking about the point at the end of Q3 at which many federal support packages are due to expire?
This crisis continues to evolve – given the pace of change since the beginning of March, the end of September seems a long way away. The size and nature of federal and state government support will need to be constantly reassessed over the coming months as the situation unfolds.
To assist this, the WA government has established a State Recovery Advisory Group, with representatives from a wide range of business, industry and community groups to support the development of a state recovery plan. This will guide our efforts over the course of 2020 as we continue to respond to the situation.
It is also the case that both levels of government continue to announce measures targeted at addressing the impact of the pandemic and promoting recovery, with these initiatives set to run for some time.
What makes you confident that a response plotted during the acceleration phase in mid-March remains appropriate?
The initial impact of the COVID-19 pandemic on the Australian economy has been steeper and quicker than the financial crisis. Even if we are fortunate enough to have an equally sharp rebound, parts of our economy and community will still require assistance.
The WA government has consciously targeted relief measures to those areas of our economy most in need. Measures have also complemented those provided by the Commonwealth, which has greater fiscal capacity. The state government has also been mindful to retain sufficient financial capacity to deliver stimulus to return our economy to its pre-COVID-19 growth trajectory.
We are of course still moving through this global health pandemic and the risk is still present. There are also many variables that mean the recovery may move quickly in some sectors but more slowly in others. The focus and value of government support will need to be reassessed constantly over the coming months. Perhaps a silver lining to have come out of this crisis is the collaboration between all levels of government, industry and business to achieve the best outcome for Australians.