The State Government is sweating on a recovery in the property market to arrest its financial slide, after Treasurer Troy Buswell warned yesterday that volatile iron ore prices and royalty revenue meant a Budget deficit could not be ruled out.
Mr Buswell's concession further cuts to the public sector may not be enough to offset the effects of tumbling commodity prices and a stronger-than-forecast Australian dollar suggests Premier Colin Barnett is at risk of breaking his 2009 promise never to preside over a budget deficit.
The Government is forecasting a slim $196 million surplus this financial year.
However, Mr Buswell said a recovery in the property market could help reduce the State's over-reliance on royalty revenue by boosting faltering stamp duty payments.
"Royalties are now 20 per cent of our income. Five years ago they were about 8 per cent," he told The West Australian.
"So our State's finances are now more susceptible in the short term to movements in commodity prices and the currency level.
"But that has to be put into context. One of our other major taxation revenue sources, stamp duty, is around $1 billion off its peak levels, and if that was to head back to those levels, our level of reliance on royalties decreases."
The State's finances are being squeezed by weaker iron ore prices, which are trading well below treasury forecasts because of global economic uncertainty, and an unfavourable exchange rate. Because iron ore contracts - and therefore royalties - are denominated in US dollars a 1¢ fluctuation in the exchange rate translates into a $60 million hit to the government's coffers.
Mr Buswell, who took a knife to the public sector last month to free up $330 million through a hiring freeze, a ban on accruing leave entitlements and cuts to spending on procurement, said the Government still hoped to deliver a surplus but conceded it would be "a challenge".
He also signalled more cuts were coming in a December mid-year review. "I can control some aspects of the Government finances, but the price of iron ore and the exchange rate are two that I can't," he said.
"There are pressures on our revenues. There will be more savings measures that we are currently finalising ahead of the mid year economic review.
"We are working hard to stay in surplus but it is a challenge . . . given the volatility of some of our revenue streams."
He would not detail any future spending cuts, or comment on how revenues were tracking.
Shadow treasurer Ben Wyatt said it appeared WA taxpayers were being "buttered up" to expect a deficit.
"The entire financial management of Barnett and indeed Buswell has been based around a wish and a prayer and it looks like we're going to return to the bad old days of Liberal deficits," he said.