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Iron ore price torpedoes surplus

Mike Nahan. Picture: Steve Ferrier/The West Australian.

Treasurer Mike Nahan has refused to guarantee the Barnett Government will be able to deliver an operating surplus in 2014-15 because of the huge slump in the iron ore price and its knock-on effect to State royalty collections.

The admission came as Dr Nahan unveiled a larger-than-predicted operating surplus for 2013-14, fuelled by less-than-expected spending in Health and Education and the lowest rate of salaries growth in 13 years.

IRON ORE PRICE SLIPS BELOW $US80

The annual report on state finances, released this afternoon, shows the Government recorded 2013-14 operating surplus of $719 million; $536 million more than projected at the time of the May Budget.

Expense growth for the year was 6.9 per cent compared to revenue growth of 8.7 per cent.

Salaries spending grew 5.2 per cent, the lowest level since 2000-01.

The bigger than expected surplus had a corresponding effect on State debt, which stood at $20.8 billion on June 30 compared to the May forecast of $22 billion.

Dr Nahan hailed the figures, saying they showed the Government was serious about trying to control its spending.

“The growth of wages has been the driver of high expenditure growth in WA for a good deal of time,” he said.

“The salary growth for 2013-14 has come in at the lowest for 13 years.”

The Government’s operating revenue of $28 billion was almost exactly in line with the previous Budget-time forecast. A $113 million fall in taxation - mainly payroll tax and stamp duty – was offset by a $114 million increase in royalty revenue, driven by higher volumes.

Expenses, however, were $550 million lower than the May forecast. The Health Department came in $138 million under budget and the Education Department came in $75 million under budget.

Dr Nahan said reduced demand for public schooling and “good management” in Health were responsible for the savings.

“I think it’s a sound performance and an indication that our fiscal action plan is working," he said.

“Debt is down hugely below what was predicted in the Budget … and importantly it is stabilising, at least for this year, at around $20 billion, which is our aim going forward and has been our stated aim in the past.

“The ratings agencies expressed some doubt about our commitment to restraining growth of expenditure. I expect them to look at these results and say that we are … making headway. Iron ore is a different story.”

While the annual report on State finances revealed a stronger-than-expected financial performance for 2013-14, the situation facing the Government is much tougher for this financial year.

Iron ore prices have now fallen below $US80 a tonne – nearly $43 below the Government’s iron ore price assumptions in the Budget.

Every $US1 below Treasury’s forecast costs the Budget about $50 million in revenue over the course of a full year.

Based on prices so far this financial year, iron ore would have to average $135 a tonne for the next nine months to go close to forecast underpinning the Budget.

The current price would blow a near $1.8 billion hole in the Budget bottom line.

“Iron ore prices are still not doing what I want them to do,” Dr Nahan said.

“We have to deal with that.”

Asked if he could guarantee an operating surplus would be delivered this year, Dr Nahan said: “No, I can’t. With iron ore prices so uncertain, and lower now, I can’t.”

Opposition Leader Mark McGowan said the Government had nothing to brag about.

“Mr Barnett and Mr Nahan are celebrating about having $20.8 billion in State Debt instead of $22 billion as forecast,” he said.

“Well whoop-de-doo. Don’t they realise they’ve just stacked on another $2.6 billion in debt in just 12 months?”