New $2 billion savings package announced in response to revenue downturn since the 2014-15 Budget
Further measures being developed to target non-essential agency expenditure
The Government remains determined to keep government expenditure at sustainable levels
The State Government has today announced a package of savings measures worth $2 billion over four years in response to the sharp decline in the iron ore price since the 2014-15 Budget and the continuing fall of WA's GST share.
Premier Colin Barnett and Treasurer Mike Nahan today announced the measures including:
a 1 per cent efficiency dividend on most general government agencies
cuts to non-essential procurement expenditure
a targeted voluntary redundancy scheme in the public sector
further efficiencies in the Government's Asset Investment Program.
Mr Barnett said these measures were in response to deteriorating budget conditions and reflected the Government's determination to make savings across government.
"While there has been a slowdown, the WA economy is by far the strongest economy in the country but the combined effect of a fall in the iron ore price and cuts in the GST to WA means that while the broader WA economy is generally strong, State Government revenue is bearing the burden," the Premier said.
"It is important that the Government respond to these financial constraints by cutting spending in the public sector."
Dr Nahan said iron ore royalties accounted for about one-fifth of the State's total revenue base.
"But the current iron ore price is about 35 per cent lower than the Budget assumption for 2014-15, which was finalised in April in line with market expectations at the time," the Treasurer said.
"This has wiped about $2 billion off the State's expected revenue in the current financial year. Moreover, under the current flawed process for distributing GST revenue among the States and Territories, the impact of this won't be fully recognised in Western Australia's GST grant revenue until 2018-19."
A revenue deterioration of this magnitude in less than six months is unprecedented, and will significantly reduce the State's capacity to deliver a general government sector operating surplus in 2014-15.
"We can't control the iron ore price or the exchange rate for the Australian dollar, and that means we have to look to our day-to-day spending and determine what can sensibly and responsibly be done in response to such a large and rapid decline in revenue," Dr Nahan said.
The savings measures announced today represent the first stage of the Government's response to the deterioration in the revenue outlook since the 2014-15 Budget.
They comprise:
an additional 1 per cent efficiency dividend on most general government agencies and the Public Transport Authority, effective immediately. It applies to agencies' cash appropriation funding, except funding for schools. The efficiency dividend will only apply to the Department of Education's central and district office spending
a 10 per cent per annum (7.5 per cent in 2014-15) reduction in operating subsidy payments to Synergy, the Water Corporation and LandCorp, matched by a requirement for these agencies to identify offsetting expenditure savings
a 15 per cent per year reduction in road maintenance expenditure for the next three years
an extension of this year's 15 per cent cut in non-essential procurement spending (on items such as consultants, consumables, communication expenses and staff travel) to 2015-16 and beyond
a redundancy scheme targeting 1,500 public sector employees, with funding to be provided to relevant agencies in 2014-15 to meet the up-front costs of the severance payments, and ongoing salary savings to be harvested from agencies' budgets from 2015-16 onwards
building on the 2014-15 Budget measure, a further 5 per cent efficiency reduction in agencies' Asset Investment Programs over the period 2015-16 to 2017-18, in light of favourable tender results being experienced for most capital projects
implementation of interim dividend payment arrangements for Synergy, Western Power and Horizon Power with effect from the 2014-15 year, which will bring the energy utilities into line with similar arrangements in place for the Water Corporation, the Insurance Commission of Western Australia and the State's port authorities.
The Treasurer said these measures were worth an estimated $2 billion (in net debt terms) over the current forward estimates period (2014-15 to 2017-18).
The Premier said further measures were now being developed to target waste and non-essential agency expenditure for example unnecessary promotional material, gifts, give-aways and the like.
Fact File
The 2014-15 Budget forecast a slim general government operating surplus of $175 million for 2014-15. This was based on an assumed iron ore price for the year of $US122.70 per tonne, consistent with market expectations at the time the Budget parameters were finalised
As a rule of thumb, each $US1 per tonne fall in the iron ore price reduces royalty revenue by around $49 million per year
Under the current GST distribution system, the decline in the iron ore price won't start to be reflected in WA's GST grant revenue until 2016-17. It won't be fully reflected until 2018-19 due to the time lags and averaging process used by the Commonwealth Grants Commission
If WA received its population share of GST, it would be $3.7 billion better off in 2014-15
Premier's office - 6552 5000
Treasurer's office - 6552 5700
