Western Australia, once the nation’s boom state with a rich vein of royalties washing into the treasury from the massive iron ore mines of the North West, now plans a $16 billion fire sale of assets to get out of a deepening debt hole.
On the auction block are the state’s power generator, Western Power, and Horizon Power’s transmission and distribution assets in the Pilbara.
The state is also looking at a proposed lease of the Port of Fremantle.
Up to $11 billion of the estimated sale proceeds will be used to retire state debt, with another $5 billion going to an infrastructure fund. A final decision on the sale won’t be made until after the next state election due in March next year.
According to analysis by Moody’s Investors Service, the state will have a record deficit of $4.8 billion next financial year. That represents about 18.5% of revenues and is more than double the $2.1 billion forecast made last year for 2016-17. Net debt will exceed $40 billion by 2019.
Western Australia, whose mining activity cushioned the country from the GFC, has a major problem of shrinking revenue. Receipts are budgeted to fall 3.1% next financial year. At the same time, spending will rise by 3.7%.
Economic growth is expected to come in at just 1.25% next year, with a subdued business environment, fewer jobs, falling property prices, a decline in housing construction and anaemic private investment — all of which drag on state revenue.
According to the budget, payroll tax will rise by just 0.2% next year as lucrative mining jobs are replaced by lower-paying positions. And land tax will fall by 5.6%, as construction slows, and royalties by 8% as iron ore decline.
Since 2014-15 when Mike Nahan became state treasurer, forecast revenues have dropped by almost $15 billion. That same year state Treasury forecast revenue of $31.2 billion for 2016-17. It is now expected to be $25.7 billion.
“Any sensible economic manager, be it a householder, business person, investor or multi-national mining giant knows that when debt gets too high, or when they reach their appropriate borrowing limits and still need fresh capital for investment, then it is time to review your asset base,” Nahan says.
The ratings agency Moody’s is conducting an in-depth analysis of Western Australia’s budget.
Its says the forecast budget deficits are credit negative.
“Although the state has implemented measures to constrain spending, these efforts have not been sufficient to stem budgetary gaps which ultimately will lead to further increases in its debt burden,” Moody’s says.
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