2016–17 Government Mid-Year Financial Projections Statement

2016-17 GOVERNMENT MID-YEAR FINANCIAL PROJECTIONS STATEMENT December 2016 RN V E ME O N G T E O H F T W A E I S L T A ER R N A U S T 2016‑17 Government Mid‑year Financial Projections Statement DECEMBER 2016 2016-17 Government Mid-year Financial Projections Statement © Government of Western Australia 2016 Further information or enquiries related to this report may be obtained by emailing [email protected] An electronic copy of this report may be obtained at http://www.treasury.wa.gov.au ISSN 1444-9110 (print) ISSN 1839-9002 (on-line) 2016–17 Government Mid-year Financial Projections Statement Table of Contents UNDER TREASURER’S CERTIFICATION ................................................. i CHAPTER 1: FINANCIAL PROJECTIONS ................................................ 1 Introduction .............................................................................................................. 1 Feature Box: Expenditure Management .................................................................. 4 General Government Sector .................................................................................... 6 Feature Box: Recent Trends in Major Taxes ........................................................... 10 Total Public Sector ................................................................................................... 19 Feature Box: Keystart – Partial Divestment of the Loan Book ................................ 23 Net Debt .................................................................................................................... 29 Statement of Risks ................................................................................................... 32 CHAPTER 2: FINANCIAL STRATEGY ...................................................... 43 Introduction ............................................................................................................. 43 Financial Targets ...................................................................................................... 45 CHAPTER 3: THE WESTERN AUSTRALIAN ECONOMY ......................... 51 Western Australia ...................................................................................................... 51 Gross State Product ....................................................................................... 51 Housing Market .............................................................................................. 56 Labour Market ................................................................................................ 56 Consumer Price Index .................................................................................... 58 Population ...................................................................................................... 58 Domestic Risks .............................................................................................. 59 Global Outlook and Risks ........................................................................................ 60 Advanced Economies .................................................................................... 60 Emerging Markets .......................................................................................... 61 Global Risks ................................................................................................... 62 Commodity Markets ....................................................................................... 62 Feature Box: Iron Ore Market Volatility and Price Movements ................................ 64 APPENDIX 1: DETAILED FINANCIAL PROJECTIONS ............................. 69 APPENDIX 2: GENERAL GOVERNMENT OPERATING REVENUE ......... 97 APPENDIX 3: MAJOR SPENDING CHANGES .......................................... 101 APPENDIX 4: THE TREASURER’S ADVANCE ......................................... 155 APPENDIX 5: SPECIAL PURPOSE ACCOUNTS ...................................... 161 APPENDIX 6: ROYALTIES FOR REGIONS ............................................... 169 Under Treasurer’s Certification The Government Financial Responsibility Act 2000 (GFRA) requires that the Treasurer release a Government Financial Strategy Statement at least once every year (section 11), and a Government Mid-year Financial Projections Statement (or Mid-year Review) updating the Budget-time forecasts by 31 December each year (section 13). The required content of these statements is detailed in sections 11 and 13 of the GFRA. For the purposes of these GFRA requirements: • the Government Financial Strategy Statement and associated financial targets disclosures are detailed in Chapter 3: Financial Projections and Fiscal Strategy in Budget Paper No. 3: Economic and Fiscal Outlook, presented to the Legislative Assembly on 12 May 2016; • the content of this Mid-year Review meets the requirements of section 13 of the GFRA. In particular: − Appendix 1 details the projections required by section 13(2)(a) of the GFRA; − Chapters 1 and 3 detail the economic and other assumptions underlying the Mid-year Review projections (section 13(2)(b)); − Chapter 2 details the compliance of the projections with the Government’s financial targets (section 13(2)(c)); and − the Statement of Risks in Chapter 1 details the sensitivity of the projections to various economic and financial assumptions and other risks (sections 13(2)(d) and (e)); and • this certification gives effect to the requirements of sections 13(2)(f) and 13(6). This Mid-year Review is based upon Government decisions that I was aware of or that were made available to me by the Treasurer, together with other relevant information known to Treasury, on or before the Mid-year Review cut-off date of 28 November 2016 and which have a material effect on the State’s financial projections. i 2016–17 Government Mid-year Financial Projections Statement It has been prepared in accordance with applicable Australian Accounting Standards and Government Finance Statistics principles, and is based on the economic forecasts and assumptions outlined in Chapter 1: Financial Projections and Chapter 3: The Western Australian Economy. These assumptions were finalised by Treasury, under my direction, on 28 November 2016. Michael Barnes UNDER TREASURER 19 December 2016 ii CHAPTER 1 Financial Projections HIGHLIGHTS • The general government operating deficit for 2016-17 is now estimated to be $3,388 million, a $527 million improvement on the $3,914 million deficit forecast in the May Budget. • This improvement predominantly reflects higher iron ore prices, partly offset by weaker than expected payroll tax and transfer duty revenue and the delayed receipt of Commonwealth funding for key road projects. • The revenue benefit of higher iron ore prices is more than offset by lower GST grants by the end of the forward estimates period, with Western Australia’s GST ‘relativity’ now forecast to reach 0.661 in 2019-20, down from 0.759 forecast in the 2016-17 Budget. • Excluding the impact of potential new asset sales, total public sector net debt is now forecast to be $483 million lower at $39.7 billion by 30 June 2020, down from $40.2 billion forecast at Budget-time. Introduction A stronger revenue outlook in the short-term (driven primarily by higher iron ore prices) is projected to result in improved operating outcomes for the general government sector in 2016-17 and 2017-18 relative to Budget-time projections. However, the operating outcomes are weaker in the last two years of the forecast period, with downward revisions to payroll tax, transfer duty and GST grant revenue more than offsetting stronger mining revenue projections. Expense growth is forecast to remain at historically low rates for most of the forward estimates period, reflecting the on-going success of savings measures introduced by the Government in recent years (see feature box below). The following table summarises the key financial aggregates for the 2016-17 Mid-year Review. 1 2016–17 Government Mid-year Financial Projections Statement Table 1 KEY BUDGET AGGREGATES Western Australia 2015-16 2016-17 2016-17 2017-18 2018-19 2019-20 Budget Mid-year Forw ard Forw ard Forw ard Actual Estimate Revision Estimate Estimate Estimate GENERAL GOV ERNM ENT SECT OR Net Operating Balance ($m) -2,021 -3,9140 -3,388 -1,534 -376 521 Revenue ($m) 26,485 25,681 26,513 28,254 30,100 31,683 Revenue Grow th (%) -3.3 -3.1 0.1 6.6 6.5 5.3 Expenses ($m) 28,506 29,596 29,901 29,788 30,476 31,162 Expense Grow th (%) 2.4 3.7 4.9 -0.4 2.3 2.2 TOTAL PUBLIC SECTOR Net Debt at 30 June ($m) 27,347 33,838 33,389 37,576 39,671 39,709 Asset Investment Program ($m) 5,237 5,862 5,548 6,373 5,745 4,681 Cash Position ($m) -4,731 -5,526 -5,402 -3,572 -1,911 155 Gross Borrow ings at 30 June ($m) 51,852 53,424 52,371 55,489 59,983 61,528 KEY FINANCIAL RATIOS (a) Cash Operating Surplus as a Share of Receipts (%) - -2.2 -2.1 3.0 4.9 6.3 Net Debt to Revenue (%) 69.8 91.2 83.3 91.5 91.0 87.4 (a) These ratios relate to the total non-financial public sector. The overall improvement in the revenue outlook, combined with changes in borrowing requirements, has resulted in lower net debt projections across the forward estimates period (relative to Budget), with net debt now forecast to reach $39.7 billion by 30 June 2020 (down $483 million since Budget-time). Key assumptions underlying the Mid-year Review financial projections are shown in the following table (these assumptions were finalised on the 28 November 2016 cut-off date for this Mid-year Review). A detailed discussion of the economic outlook is available

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