A tale of two budgets: Frydenberg's debt monster vs WA's surplus siren

On Tuesday night, Josh Frydenberg revealed the size of the economic storm unleashed by COVID-19, telling Parliament the pandemic would see the deficit reach $213.7 billion this year, before falling to $66.9 billion by 2023-24.

Net debt will increase to $703 billion or 36 per cent of GDP this year and peak at $966 billion or 44 per cent of GDP in June 2024.

Those amounts are massive and will take a generation to repay.

But in WA, despite the coronavirus pandemic, the state government still posted a budget surplus at the end of the 2019-20 financial year. Even though the McGowan government spent an extra $529 million than it planned (mostly in economic stimulus payments), it raked in an extra $945 million in higher royalties, thanks to booming iron ore prices.

According to the most recent numbers, the McGowan government hauled in $1.7 billion more than it spent in 2019-20. Still in surplus, which was once a political prize worth the fiscal pain.

Yet things could get even rosier for the state budget. In the first two months of this financial year, the spot price of iron ore was above US$100 a tonne. Since August, the price has been around US$120 a tonne, reaching as high as US$125.

This is way over WA budget projections estimates, which guessed the price to be at US$66.20 a tonne for this year. For every US$1 more than projected over the year, the state brings in an extra $85 million in unbudgeted royalties. This means the royalties for July and August alone could be more than $650 million more in state coffers ready to be spent on stimulus or, more likely, the March election.

When you add the extra stamp duty because of additional land sales sparked by government subsidies (before the building bonus, about 60 blocks a week were sold, now it's more than 500), Mr Wyatt will have to do a whole lot of spending on new projects for the budget to come even close to deficit.

https://www.watoday.com.au/politics/western-australia/a-tale-of-two-budgets-frydenberg-s-debt-monster-vs-wa-s-surplus-siren-20201006-p562ms.html

Kudos to both the Premier and the Treasurer of Western Australia.

Raider