2019-20 GOVERNMENT MID-YEAR FINANCIAL PROJECTIONS STATEMENT December 2019 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 2019‑20 Government Mid‑year Financial Projections Statement DECEMBER 2019 2019-20 Government Mid-year Financial Projections Statement © Government of Western Australia 2019 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) 2019–20 Government Mid-year Financial Projections Statement Table of Contents UNDER TREASURER’S CERTIFICATION ................................................. i CHAPTER 1: FINANCIAL PROJECTIONS ................................................ 1 Introduction .............................................................................................................. 2 Feature Box: Leveraging Stronger Finances to Support the Economy .................... 5 General Government Sector .................................................................................... 7 Feature Box: Environmental Approvals .................................................................... 12 Total Public Sector ................................................................................................... 18 Net Debt .................................................................................................................... 25 Feature Box: Western Australia’s Net Debt Trajectory ............................................. 27 Statement of Risks ................................................................................................... 29 CHAPTER 2: FINANCIAL STRATEGY ...................................................... 35 Introduction ............................................................................................................... 35 Financial Targets ...................................................................................................... 37 CHAPTER 3: THE WESTERN AUSTRALIAN ECONOMY ......................... 43 Western Australia ...................................................................................................... 44 Gross State Product ............................................................................................. 44 Housing Market .................................................................................................... 47 Labour Market ...................................................................................................... 48 Consumer Price Index ......................................................................................... 49 Population ............................................................................................................ 49 Domestic Risks .................................................................................................... 50 Global Outlook and Risks ........................................................................................ 51 Advanced Economies .......................................................................................... 52 Emerging Markets ................................................................................................ 53 Global Risks ......................................................................................................... 54 Commodity Markets ............................................................................................. 55 CHAPTER 4: INVESTING IN REGIONAL WESTERN AUSTRALIA .......... 61 APPENDIX 1: DETAILED FINANCIAL PROJECTIONS ............................. 73 APPENDIX 2: GENERAL GOVERNMENT OPERATING REVENUE ......... 95 APPENDIX 3: MAJOR SPENDING CHANGES .......................................... 99 APPENDIX 4: THE TREASURER’S ADVANCE ......................................... 143 APPENDIX 5: SPECIAL PURPOSE ACCOUNTS ...................................... 151 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: Fiscal Outlook and Strategy in Budget Paper No. 3: Economic and Fiscal Outlook, presented to the Legislative Assembly on 9 May 2019; • 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 2 December 2019 and which have a material effect on the State’s financial projections. i 2019–20 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 2 December 2019. The 2019-20 Budget incorporated a number of new accounting standards that came into effect for reporting periods commencing after 1 January 2019 (see 2019-20 Budget Paper No. 3 for details). Consistent with the presentation contained in the 2019-20 Budget, to assist readers and to support trend analysis, prior year financial outcomes and projections discussed in this Mid-year Review, and in the detailed financial statements in Appendices 1 and 2, have been backcast to estimate the impact of new accounting standards had they applied to years prior to 2019-20. Michael Barnes UNDER TREASURER 17 December 2019 ii CHAPTER 1 Financial Projections HIGHLIGHTS • The State’s financial outlook continues to improve, with: – the general government operating surplus for 2019-20 revised up to an estimated $2.6 billion (from $1.5 billion at Budget-time), and operating surpluses also forecast across the outyears; – total public sector net debt declining in each year of the forward estimates period, to be $3.2 billion lower than forecast at Budget-time; and – interest costs for the general government sector being revised down by $679 million over the forward estimates period since Budget. • These improvements reflect a number of temporary or one-off revenue factors, and the Government’s ongoing focus on disciplined expenditure management. General government expense growth is forecast to average just 1.6% per annum over the next four years. • Global and national economic headwinds have intensified since the 2019-20 Budget, which has impacted the economic growth projections in this Mid-year Review. Nonetheless, growth in the Western Australian economy is still expected to accelerate to 3% in 2019-20, up from 1% in 2018-19. • The turnaround in the State’s finances has allowed the Government to implement targeted spending and tax relief measures to support the economy and create jobs, and invest in key service delivery areas. 1 2019–20 Government Mid-year Financial Projections Statement Introduction Relative to the 2019-20 Budget, general government operating surplus projections have been revised up across the forward estimates period, with a surplus of $2.6 billion now forecast for 2019-20 (up from the Budget estimate of $1.5 billion). The improved outlook in 2019-20 is due to a number of external revenue factors, including: • a temporary boost to royalties from higher iron ore prices ($1,037 million) and; • a lower $US/$A exchange rate ($357 million). Compared to the 2019-20 Budget, general government revenue estimates have been revised up by a total $2.6 billion (2%) over 2019-20 to 2022-23. However, revenue growth is expected to average a modest 2.7% per annum over the Budget period (well below the decade average of 5.1%), largely reflecting an expectation that the iron ore price will return to its long-run average (of around $US64 per tonne) over the next year or two. This highlights the need for a continued focus on managing general government expense growth to ensure that the operating surplus projections outlined in this Mid-year Review are achieved. Expense growth is expected to remain low across the forecast period, averaging just 1.6% per annum over 2019-20 to 2022-23. The following table summarises the key financial aggregates for the 2019-20 Mid-year Review. Table 1 KEY BUDGET AGGREGATES Western Australia 2018-19 2019-20 2019-20 2020-21 2021-22 2022-23 Budget Mid-year Forw ard Forw ard Forw ard