Public net debt would fall by around $1.5billion, which includes a decline in gross borrowings by $2.2billion, over the next three and a half years relative to Budget forecasts as a result of a rigorous restructure of the Government’s Asset Investment Program, Treasurer Troy Buswell announced in the 2013-14 mid-year review.
Unveiling an extensive package of reform and restructure to the Government’s Business Model and Asset Investment Program, Mr Buswell said the savings and reform agenda were aimed squarely at recovering the State’s AAA credit rating.
“This will effectively reduce net debt from around $28.3billion to $26.9billion and reduce gross borrowings by $2.2billion from $50.2billion to around $48billion and put the brakes on the State’s debt which is one of the key components in returning to our AAA credit rating,” he said.
Gross borrowing reflects loans that the State uses to fund infrastructure spending and is a key indicator in ratings agencies deliberations. Net debt is the value of these loans less liquid financial assets (like cash in the bank). Both will reduce significantly on the back of the Government’s Fiscal Action Plan.
Standard & Poor’s downgraded the State’s credit rating in September to AA+ prompting the Government to extend the Fiscal Action Plan contained in the 2013-14 State Budget and re-double its pursuit of savings within the public sector.
The Treasurer reconfirmed that the Government’s workplace reforms were set to save $2.7billion over the forward estimates.
The combined effect of reduced expenditure - both in recurrent and asset investment - increased revenue, including from asset sales and a reduction in borrowings and borrowing costs, would deliver savings of $8.6billion over the next four years.
Mr Buswell revealed a raft of new corrective measures including:
A 10 per cent reduction in general Government agencies’ estimated procurement expenditure for the last three quarters of 2013-14 with the exception of Western Australia Police and smaller agencies with savings of under $200,000 ($92million)
A cap in provision of local government road funding under the current State Road Funds to Local Government Agreement at the level projected when the agreement was signed ($70million)
A review of the Asset Investment Program featuring:
a) A three-year deferral of the MAX Light Rail project ($432million)
b) Reductions in Housing Authority, Water Corporation and Main Roads programs ($995million)
c) The removal of previously planned expenditure on the Kwinana Bulk Jetty and Terminal facilities ($104million).
As well as the improved debt position Treasury has also forecast an improvement in the operating surplus to $437million, approximately $50million more than the $386million forecast in the August State Budget. This makes WA one of only two governments in Australia to have a surplus.
But the Treasurer said that despite marginal improvement in the fiscal outlook the Government had no intention of easing off on its Fiscal Action Plan.
“Our number one priority is to return the State to AAA status and that will mean constant evaluation of programs and projects to deliver better value for money to taxpayers,” he said.
Mr Buswell said this would be done without impacting on frontline services in health, education and law and order while still delivering on major election promises in capital works.
The Government will maintain an infrastructure spend of $24.4billion over the forward estimates on projects such as Perth Children’s Hospital; Elizabeth Quay foreshore development; Forrestfield Airport Link; a new WA Museum and the Burswood stadium.
Key elements of the restructure of the Asset Investment Program:
Asset sales (e.g. Kaleeya, Utah Point, Kwinana Bulk Terminal)
Asset deferrals (e.g. MAX Light Rail)
The Treasurer said the focus on reform would deliver ongoing fiscal discipline and structural change to the Government’s Business Model.
Key elements of the reform process:
Mr Buswell said the Government introduced a new policy to hold public sector salary increases to the CPI from November 1, 2013 and legislation to enable the WA Industrial Relations Commission to take account of the State’s finances when deliberating on wage claims, which would contribute savings of $2.7billion over the forward estimates.
The Treasurer said voluntary redundancies were the other major contributor to the savings figure, with the Government spending $132million to pay out 1,000 public sector employees in order to reap the longer term benefits.
Mr Buswell said that while the State’s economy continued to grow at around double the growth in the national economy in 2012-13, a population influx of more than 1,000 people per week continued to place extraordinary pressure on areas such as health and education.
General government operating surplus:
Total public sector gross borrowings (debt):
Gross debt as a share of revenue (total non-financial public sector) %
Treasurer’s office - 6552 6400