Western Australia’s Treasury expects coronavirus to send the state’s economy into recession, with a contraction of 3.1 per cent predicted in the 2020–21 financial year as the economy takes a $12 billion hit.
Key points:The economy is set to grow 0.7 per cent this financial year before contractingThe hit will include a $1.8 billion drop to government revenueAll sources of revenue have declined except for mining royalties
The State Government is bracing for a total of $12 billion to be wiped from the WA economy over the 15 months from April, and expects a $1.8 billion reduction in government revenue through to the end of the next financial year.
Treasurer Ben Wyatt outlined the March quarterly financial results in State Parliament this morning.
Mr Wyatt said to date the State Government had committed COVID-19 measures to support households, small and medium businesses totalling about $1.8 billion.
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He said while the quarterly report largely reflected conditions prior to the pandemic, the economic and fiscal update also tabled in Parliament today provided an initial forecast of its true impact on the state.
“The impact of the pandemic and social restrictions to contain its spread have been devastating for Western Australian businesses and households,” Mr Wyatt said.
“The upward trajectory of the state’s economy has been derailed by the pandemic.
“Gross State Product had been projected to grow by 3 per cent in 2019–20, which would have been the fastest rate of growth since 2013–14.
“Instead, Treasury’s initial baseline modelling indicates the Western Australian economy will now grow by just 0.7 per cent this financial year, with a 3.1 per cent contraction expected in 2020–21, before returning to growth.”
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Mr Wyatt cautioned the figures were still “highly uncertain”.
“The economic shock will result in an inevitable corresponding deterioration in the state’s finances,” Mr Wyatt said.
“While royalty collections have remained resilient, this is expected to be significantly outweighed by declines in other sources of revenue including GST grants, payroll tax, transfer duty, land tax, vehicle licence duty, and agency own-source revenues.
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“The June quarter we’re looking at about a 5 per cent contraction … that’s around a nearly $4 billion impact out of the economy.
“We haven’t seen a fall with such speed, so having that contraction in one quarter is extraordinary.”
Mr Wyatt said over the 15-month period $12 billion would be stripped from the state’s economy.
He said the State Government would now focus on its response to the challenge, with an emphasis on infrastructure spending and reforms to cut red tape in order to stimulate the economy.
But he said he remained “optimistic about where the economy is going” and still expected he would be able to deliver a surplus in the October budget.
“Whilst up until March we are still operating a strong operating surplus position, that has deteriorated rapidly over this quarter,” Mr Wyatt said.
“So we are still expecting a surplus position this year. 2020-21 is much more problematic.”
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The WA Chamber of Commerce and Industry said the contraction was by far the biggest in modern times.
“We’ve never come close to anything of this scale,” chief economist Aaron Morey said.
“What this means is slower economic growth, slower wages growth, slower investment right across the WA economy and that’s why we really need governments to be bold.”
He said the State Government did not necessarily have to spend big to help the economy, but investment in skills and infrastructure, as well as tax reform and deregulation, could limit the economic damage so WA could sooner return to growing its economy.
“We don’t have to accept our economic fate,” he said.
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