WA State budget: Ratings agency flags whopping 50 per cent growth in subsidies, warns over $4b spending spree

Treasurer Rita Saffioti has been warned WA can not afford to keep indulging in sugar hit spending and should focus on those most in need, as the cost of government subsidies hits $4 billion this financial year. That price tag has rocketed almost 50 per cent over the past four years, according to data collated by ratings agency S&P. The costs include free TAFE and the dramatically rising subsidy to keep the Public Transport Authority running — now nearly $1.2b a year thanks to the abolition of fare zones and expansion of Metronet. Kid’s sport vouchers, power bill rebates and crucial concessions for pensioners and low income families also add to the tally. “Community expectations of the role of government are ever expanding,” S&P Global Ratings’ Martin Foo said, stressing that the company had no view on the merits of each item. “We think some of these concessions could prove difficult to withdraw and constrain fiscal flexibility over time.” WA’s coveted AAA credit score remains intact and the State has a better debt position than any other. Yet there are concerns the budget is not ready for a downturn, with the Treasurer planning to borrow nearly $5b this year even as royalties and stamp duty deliver windfalls. It will fuel debate as to whether the Government has used the revenue boom to pay down debt sufficiently or cranked up spending that may not be sustainable should iron ore prices drop. Committee for Economic Development Australia chief economist Cass Winzar said WA’s budget was in an “enviable” position. “(But) the WA mining sector, and the economy, is highly cyclical and we can’t expect to have this level of revenue forever,” she said. “We are not doing enough to ensure we have a sustainable budget that can see us through downturns in the mining sector. “The best way to address cost-of-living pressures is not energy rebates or vouchers for kids activities, it is getting inflation under control. “Demand from State Government (infrastructure) spending is adding to private sector activity and putting pressure on labour markets and prices.” EY senior economist Paula Gadsby said cost of living relief helped short term but it “exacerbates long-term fiscal challenges”, so spending should be targeted to people most in need. She said the government needed to be disciplined to safeguard against volatility. “There is no doubt that WA is in a stronger fiscal position than the other states and territories,” Ms Gadsby said. “But given the State’s reliance on volatile royalty revenue, spending decisions need to factor in potential commodity price declines.” A spokeswoman for Ms Saffioti said “strong financial management” meant the Government “can continue to invest in targeted cost of living support for WA families”. “We’re on track to deliver an eighth consecutive operating surplus this financial year and WA’s debt burden remains by far the lowest in the country,” she said. Shadow Treasurer Sandra Brewer said the State Government was the “prime culprit of S&P’s warning that States are quickly spending away windfall revenue gains”. “It’s worrying that one of the world’s leading credit rating agencies is now questioning whether Treasurer Rita Saffioti has a genuine plan to rein in her excessive spending, which has not materially improved service delivery in WA,” she said.