Treasurer Mike Nahan has warned more cuts to the Budget may be necessary to offset tumbling iron ore prices that are threatening to rip $1.5 billion from the State's bottom line.
Less than a month after handing down his first Budget, Dr Nahan said the Government was monitoring closely the iron ore price.
The Budget, and its forecast $175 million surplus for 2014-15, rests largely on the iron ore price averaging $111.30 a tonne through the coming financial year.
But an oversupply of the ore and softening demand out of Australia's biggest market, China, has pushed the price down sharply over recent weeks.
It is now about $92 a tonne, having fallen 13 per cent over the past month.
Based on the Government's forecasts, such a fall threatens to punch a hole of between $1 billion and $1.5 billion in the Budget.
Dr Nahan said if iron ore prices remained weak, the Government would take "corrective" action.
"The Government will continue to monitor the iron ore price very closely and will take further corrective action as required to ensure the Budget remains in surplus," he told _The West Australian _.
The State lost its triple-A credit rating last year over concerns the Government lacked the "political will" to cut spending and its heavy dependence on volatile iron ore royalties.
Royalties account for 22 per cent of State revenue.
There have been concerns the sharp fall in iron ore prices could hit the current Budget and its forecast surplus of $183 million.
Dr Nahan said the fall had had a "fairly muted" impact on the overall 2013-14 Budget, adding he was confident a small operating surplus would be recorded.
"Current indications are that there is likely to be some upside in terms of iron ore production volumes relative to the Budget assumptions, offsetting the impact of the decline in price," Dr Nahan said.
Another problem facing the Budget is the slowdown in the property market.
House values in Perth this year are down 1.3 per cent, suggesting revenue from stamp duties will be weaker than expected.