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Big WA budget deficit looms despite bailout

A Federal WA bailout package will not be enough to avert the Barnett Government's fiscal crisis, with the State facing a $2 billion Budget deficit.

Treasurer Mike Nahan rejected suggestions yesterday that the Federal package would be a handout but conceded any cash would go directly into repairing the State's Budget bottom line.

WA is looking for assistance that would effectively keep its GST share where it now stands at almost 38� in the dollar.

Dr Nahan said such a move would add up to $660 million to the State over two years.

He said the money would flow into capital projects including Perth Freight Link, which the Commonwealth is already part-funding.

"It's not a handout," Mr Nahan said. "It's just recognising that the other States would not do the right thing on GST distribution and the Commonwealth is providing leadership by helping us compensate for the failure of the other States.

"It would come in as recurrent revenue. We might have some issues on debt later on - it depends what it's used for."

The size of the fiscal problem facing Dr Nahan continues to grow, with the Federal package unlikely to make a major dent.

The 2015-16 Budget, which in December was forecast to show a deficit of $900 million, is facing a big blowout.

It is based on an iron ore price averaging $US79.60 a tonne.

Yesterday, the iron ore spot price was $US50.90 a tonne.

The difference, if it continues through next financial year, would strip the State of $1.4 billion and leave the Government with a deficit of more than $2 billion.

Next year's Budget, which would cover the March 2017 election, could be facing a deficit close to $1.5 billion instead of the $304 million surplus predicted.

Federal Finance Minister and WA senator Mathias Cormann is due to hold talks with Dr Nahan this week for formal negotiations over the special WA deal. Senator Cormann said long-term structural solutions to WA's complaints about GST would have to come through the Federation White Paper process.

But a WA-only deal was on the cards. "We have said that we would work with WA on a bilateral basis to explore how the Commonwealth can best and most appropriately support WA through a transition over the short term," Senator Cormann said.

Dr Nahan said the talks would focus on the size of the package, its timing and whether there were any requirements attached to the cash.

Already Federal Treasurer Joe Hockey has demanded WA reform the State economy and sell publicly held assets. Prime Minister Tony Abbott has said there are no "free gifts" for any State.

Victorian Premier Daniel Andrews, who was angered last week by Mr Barnett's connection of GST funding to the Black Saturday fires which claimed 173 lives, raised no concerns about WA's bid for extra cash.

"If the Commonwealth wants to come to an arrangement with the WA Government that's a one-off payment, then that's a matter entirely for them," he said.

'We might have some issues on debt later on - it depends what it's used for.'"Treasurer *Mike Nahan *