CCIWA Chief Economist
The State Budget reveals a Western Australian economy heavily buffeted by the winds of COVID-19, but nonetheless expected to grow in the current year on the back of a decline in imports, growth in mining investment, and record government spending. Within these figures, service sector exports are expected to contract by 26 per cent this financial year.
The Government’s approach to driving the recovery effort is a reduction in fees and charges for households and a surge in public infrastructure spending. The Government’s asset investment program is increasing by a significant amount in the current financial year, up 46 per cent. To ensure this funding is spent, the Government has established an Infrastructure Delivery Unit aimed at ensuring projects go ahead as planned.
The Budget however misses the opportunity to incentivise the business community to power up the economy.
This is in clear contrast with the approach of the Federal Government, which delivered a strong prescription of measures to support business investment and job creation efforts.
Given the State Government forecasts unemployment of 8 per cent this financial year, there is a missed opportunity to enact measures that would ensure the entire WA business community plays a central role, alongside the government, in fighting the economic challenges.
The Government should begin dismantling the monopoly in retail electricity, by letting small energy customers above 20 megawatt hours per annum choose their own retailer. That competition would encourage private investment in new generation assets and technology and would see electricity prices fall in much the same way they have in the gas market. The Budget has confirmed that while electricity tariffs have been frozen for households, they are set to increase for small businesses by 3.7 per cent this year.
Further payroll tax relief should be provided to businesses so that they can maintain and expand their workforce. In addition, there are a number of other smaller reforms the government can make to relieve the tax burden on WA businesses including:
- The abolition of transfer duty on the selling of non-land business assets;
- Reducing the burden of complying with the tax system by rationalising the number of brackets and rates; and
- Raising the threshold for which businesses are required to lodge quarterly payroll tax returns.
A more comprehensive strategy to lean into global trade and investment markets is also required as WA lags other States in its approach. This includes developing a comprehensive Deal Book of investment opportunities in WA, and a strategic plan to capture market share in international education markets. There is a significant opportunity for WA to leverage its success in controlling the virus by attracting tourists and international students.
It is noted that the State Budget includes a near-identical assumption to the Federal Government for a June quarter relaxation of the hard border. Recognising that the Federal Government expects a vaccine is more than a year away, and it may not be the panacea that we all hope for, it’s vital the Government lays out a path forward for the economy, including clarification of its investment in a world-class contact tracing, testing and quarantining regime.