WA Budget gutted, Turnbull’s destroyed

The WA Budget was out late yesterday. Here are it’s key assumptions:

rtshyrw5

Versus last year:

dfghre

And to make it easier, here are the big changes:

2016/17 economic outlook annual growth
15/16 Budget 16/17 Budget Change
State final demand 0.00 -3.75 -3.75
Dwelling investment -0.50 -8.75 -8.25
Business investment -7.50 -19.00 -11.50
Government investment -3.00 10.75 7.75
Unemployment rate 6.00 6.75 0.75
Wage price index 3.00 1.75 -1.25
Iron ore price 50.70 47.70 -2.30

Without putting too fine a point on it, this might be a different economy. Every number has been decimated and stimulus is now pouring out. The context hasn’t changed since last year’s Budget, it’s just that last year the WA Treasury bald-faced lied about the economy. It’s still too bullish this year and in outer years but at least it is now on the moon as opposed to swimming around Uranus.

Take for example business investment which last year pretended it would fall progressively by -37.25% to 2018. Now the fall is -52% over the same time frame. Here it is in charts. The old:

dtrgjetdy

Versus the new:

sfdhsr

But it is still far too bullish. The number for 2018 should be $20 billion tops. More revisions ahead next year!

It’s Friday, it’s been a long week, and in truth there’s little point in destroying the Budget blow by blow again. We know that it’s still a fantasy. More interesting is what the partial sobriety of the WA Treasury does to the shitfaced forecasters at the national Treasury.

The WA iron ore price forecast is $42.70FOB versus $55FOB for the Feds. They’re both still drunk – with the best guide to future pricing, the Singapore 12 month swap now at $35 – but one is quietly swaying as it holds up the bar whereas the other is cavorting on a  stool with its pants down, projectile vomiting over the room.

Moreover the volume forecasts are just as divergent with WA Budget reasonable while the Federal Budget uses the propaganda downloaded directly from the Ministry of Dirt (or Office of the Chief Economist, Department on Industry to some). If one extrapolates the respective forecasts to revenue we get this:

erue

Yes, the Federal Budget has a forecast for national iron ore income virtually double that of the WA Budget, let alone what futures are saying. This represents some $8 billion in Budget revenue and 1.5% of nominal GDP per annum. Not accounting for this enables the Government to pretend that it is engaged in budget repair and dodge meaningful reform so it can paint the Opposition as ‘high taxing’ at the election.

Let’s not forget what Moody’s said and did after WA’s shocking Budget of lies last year. It stripped WA’s rating and said:

The ratings downgrade reflects the ongoing deterioration in Western Australia’s financial and debt metrics and an increasing risk that the state’s debt burden will be higher than indicated in its FY2015/16 midyear report. The drop in the price of iron ore and the sluggish performance in state taxes have led to declines in revenue, and, absent corresponding expenditure measures, budget deficits are widening significantly. As a result, the state’s debt burden is rising to a level that is higher than that of its peers.

And what it said of the national Budget last week:

The projected increase in revenues as a share of GDP is based on a return to robust nominal GDP growth which generally comes with a higher revenue-intensity of growth. Our forecast for nominal GDP growth is somewhat more muted than the government’s. We estimate that the adjustment to an environment of lower commodity prices is still underway and will continue to weigh on corporate profitability and wage growth. As a result, improvements in the government’s revenues may be somewhat more muted than currently budgeted.

When the sovereign rating is stripped later this year, you can lay the blame directly upon Mad King Malcolm and his ‘do nothing’ tilt for power.

Houses and Holes
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Comments

  1. Yo dawg I heard you like foreign debt, so I bought some debt with your debt so you can get derated while you get derated.

    Bring on the bubble busting currency crunch!

    Back in the 80’s, How Green Was My Cactus (a radio show) had an episode where King Bonza sells the whole country for a million dollars per citizen: might be a plan worth rehashing.

    • none would pay that much because with every citizen they get one more million of bad debt

    • Foreign debt…. it worked out so well for Chelsea Clinton’s hubby Marc Mezvinsky….

      Chelsea Clinton’s husband shuts down vulture fund after losing 90% of his investors’ money

      “Chelsea Clinton’s husband Marc Mezvinsky is a Goldman Sachs alumnus; in 2014, he founded Hellenic Opportunity, a hedge fund that raised $25M to bet on distressed assets from Greece’s collapsed economy, wagering that the country’s investors would force it to make deeper cuts to finance payments on the debts.

      The fund lost 40% of its value in its first year. It shut down last month, having lost 90% of its investors’ cash (Mezvinsky will have earned $250,000/year to manage the fund, assuming he had the standard 2% hedge fund deal).

      Either Mezvinsky’s investors had remarkable confidence in him, or his fund was structured with long lock-ins that prevented them from getting out as the fund drained out.”

      http://boingboing.net/2016/05/12/chelsea-clintons-husband-shu.html

      Chortle… Marc Mezvinsky bet on austerity working contra to – all – historical evidence and still got a cool quarter mill PA for having good name association e.g. Goldman / Clinton…

      Disheveled Marsupial…. The chutzpah to name the fund “Hellenic Opportunity” when Vulture is more apropos…. and people wonder why stuff is so screwed up….

    • Today's Empire Tomorrow's Ashes

      Even as a little tacker in Year 8, I loved that show. Hilarious.

  2. well at least they’re not applying their regular forecasting method anymore… ie. the ruler pointing sharply upward

  3. Terror Australis

    What chance that the national credit rating might be lowered before election day?

    • The Patrician

      +1 Cop a load of the latest Perth residential land price data hot off the presses

      “ The preliminary median land price has increased to $305,000 for the three months to March 2016, up 8.9 per cent on the December quarter. Annually, the land median price has jumped 13.1 per cent. Mr Groves said further analysis of the data showed that the majority of land sales, around 42 per cent, were smaller lots between 320 and 499 square metres with a median of $309,000.”

      8.9% Land price inflation!…..in a quarter!……in Perth!
      Lucky there is no inflation

      These morons have achieved the impressive feat of killing new dwelling approvals while sending land prices through the roof

      • reusachtigeMEMBER

        Boom times ahead for housing in Perth. Now is clearly the time to gear up!

      • Not SpendingMEMBER

        I’ve been listening to the RE Cartel on the Radio and TV and they are saying that the bottom of the market is nearly here in WA. I’m not sure what they are basing that on, as the Vacancy Rate continues to rise and rental prices are still coming down.
        The latest slogan promoted by them was ” Slow and steady wins the race” meaning the market was very stable and it was a great time to get into the market.

        I don’t think I have ever heard anyone from REIWA ever say it is a bad time to invest…

  4. There are so many taxes they can put up.

    Tap water tax – make it $6/kL. Still cheaper than trucking it in.

    Land tax.

    Parking fees.

    • Today's Empire Tomorrow's Ashes

      Parking fees is the most retarded suggestion to raise more money specifically in regional areas where no viable alternatives exist.

  5. I find it fascinating that year after year, budgets at all levels of government, and in fact businesses too, have such a strong cognitive bias towards long term growth. The forward estimates always show things trending up, even in the face of a crushing depression, we’d still be mining the most precious mineral of all, hopium.
    I understand why this is, and I agree that nobody would ever get elected on a platform of “it’s going to get shittier under my leadership”, but I still find it amazing how they delude themselves; with our blessing apparently.

    • the only mantra politicians have is growth. Take growth from they and literally nothing is left in their ideology that may even remotely please average voter.

    • If there is no growth, there is only defense……
      Pick any place on the planet at the moment, and its people are being distracted by ‘the peril without’.

    • Look at the the Government revenue increases in 17/18 & 18/19, It’s + 7.8% & + 9.5% *

      * Table 2 Key Budget Aggregates

    • Because budgets are less about relaistic estimates of expenses and income, ie a real budget, but more a marketing tool for politicians to bribe the masses and tell everyone just how fucking awesome they’re going to be in the year ahead.

    • Same for business, we do a bottoms up budget which will show minimal growth, then along comes the additional growth needed to achieve to satisfy investors, then we don’t make budget, and don’t get the incentives to tied to budget

  6. You might need to check your sums on your major differences table. Government investment and iron ore price are both incorrect.

    • It would be interesting to see who is going into the Salvos to pick up food packages.

    • Mining BoganMEMBER

      Ooohhhh…this is one of those luxury cars with bald tyres things.

      Indoctrination should be cheaper anyhow.

      • My old man had a job that took him around the panel beaters of the town.
        His economic measuring stick was the travelling pie van.
        If it went home empty, things were good in town.
        If not, go long booze and pokies.

        Another good indicator I’ve heard of is school shoes.
        If everyone at school has new shoes on the first day of the year, there ain’t a cloud in the sky.

      • Sounds good footsore, lemme just park outside my local primary school with a camera to capture all the children’s feet to form an analysis.

        Wait…

      • PantoneMEMBER

        Private school fees are just a legal form of hazing. It cost so much, it must be good!

      • @Footsore
        back in the 90’s, a popular way of assessing the health of High tech manufacturing was to count the cars in the parking lot for the 3rd shift (overnight). Well management became aware of the importance of this metric and decided to buy a bunch of clunkers and park them in the parking lots. It pissed off everyone on the day shift because the parking lots were always full. But everyone got over the inconvenience when the stock price rocketed and their options were worth 7 or 8 figures.

  7. reusachtigeMEMBER

    ” but at least it is now on the moon as opposed to swimming around Uranus” … brilliance!

  8. TailorTrashMEMBER

    “whereas the other is cavorting on a stool with its pants down, projectile vomiting over the room” ………………………brilliant image ………..
    Nothing like a good technicolor yodel in the morning …….

  9. Diogenes the CynicMEMBER

    Still a pathetic effort at forecasting even if it is more realistic than last year’s fantasy. In FY17 Household consumption will be way lower than 1.75%. Dwelling investment has peaked and will decline big time..there is a huge apartment bust happening right now in Perth they are cutting new completed apartment prices as they can’t sell them or the settlements have fallen over! Business investment is still too high as you have noted. Unemployment hasn’t peaked yet and state final demand will fall much faster than FY18 figure of -0.25% suggests. I guess WA gets downgraded again as the debt blows out. Can’t see Colin hanging around for too many more months.

  10. Neville Gearless

    What about the population? I thought by “every measure” people would be leaving. Instead its 1.3% growth (national average) and its going up.
    The real killer for WA’s economy, and historically always has been, are the other states. That $3b GST cash heading east for 3 years straight happens to coincide with the states operating deficit.
    You guys seem to always forget that, convenient.

    • adelaide_economist

      “The real killer for WA’s economy, and historically always has been, are the other states.”

      Nope.

      The Grants Commission was *created* because WA was an economic malingerer and WA sucked from the teat of the Federation for many decades and was receiving more than it paid in even up until 2007 – well into the mining boom.

      Even your own state government admits this – the preferred narrative – in many WA government documents you can find in a 10 second google – is that ‘tariffs’ crippled the WA economy (despite it historically still having a reasonable manufacturing sector) and had to be offset.

      They don’t deny (because they can’t) they were a beneficiary for many decades of net transfers.

      • Neville Gearless

        lol,
        Here’s a table of GST split since 2000:
        http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201314/ComPayments

        LOL, happens WA has been a net receiver since the gold rush, the one in 1893…

        The GST take by WA was in tiny surplus and for a couple years only. Of course WA always had disproportionately high company taxes, to the tune of $150B heading one direction to the east coast since 1984. If you ever saw the nation’s collection of yellow pages phone books in the 90’s (back when people actually used them), you will notice Adelaide and Brisbane’s were thin little things, Syd and Melb where huge double volumes. Perth was the same size as Sydney’s and Melbourne’s indicative of the totally different structure of our economy to the rest and the reason the company tax take is so huge.

        You can read a little history about federation too:
        http://docsfiles.com/pdf_waj_vol2_2011_d_harrop.html

        The alternative back in 1900 was well understood even back then, either run the economy to benefit WA, or, run it to benefit the state of Victoria. Obviously WA chose along with NZ and ignored it, thus WA didnt go to the federation convention, nor is the place mentioned in the preamble in the constitution and was all set to go on its own course. The fact that the Goldfields “t’other siders” happened and the rest is a sad history. WA fell from double the national income/per capita to well under in a decade. When the federation started hiking tariffs from 1906 even NSW wanted to secede, but successive high court decisions interpreting the constitution so narrowly, cemented federation even further.

        So we are stuck with the fact the conditions that suit WA wreck the east coast economies and visa versa.

        Right now WA has what it wants, low tariffs, so it will always bounce back with its wide diversity of industry, you know, Austral ships having 15% of US navy ship building program, large number of innovative small manufacturing and powerful Ag sector etc.

        SA has its begging for rent seeking projects, not much of a future with that I’m afraid.

        The 10 second google throws up a bunch of east coastie nonsense, you know, presenting half the ledger and pretending they have a point.

      • adelaide_economist

        @Neville

        WA has played big stakes politics with the Grants Commission on GST relativities and – I’m afraid – you lost. Enough people are aware enough of WA’s history as a net recipient that the arguments put forward by Barnett and Nahan hold little water. And it’s just as well because with the WA economy cratering you’ll be back to a net recipient probably by 2020 if not earlier.

      • Neville Gearless

        yeah yeah yeah..
        So how is being forced to pay double for machinery inside a huge tariff wall “sucking on the” freaking “teat of federation” while through legislation, SA got to extort exporting states with double price clunky machinery & cars…. not?

        Lets look at time when mining was quite unremarkable:
        WA gsp/capita 2004: $88k
        SA gsp/capita 2004: $40k

        Through the 90’s the picture was the similar, WA doesnt need a huge mining capex spend to be no.1, thats why we know WA will pull through this current little adjustment. SA? No chance.

        The 115 year tally so far is, the east owes us $150B.
        PayPal ‘ll do..

  11. StomperMEMBER

    Shorten could blow this election wide open if he focused on two things in tonight’s debate….
    1. the impact of the iron ore price on the budget and the difference between the Fed-Treasury forecast and WA forecast and the underlying black hole
    2. the tax cut to small business that isn’t (due to imputation)
    Given the number one issue for the populace is the economy this to me would be a winning strategy

  12. I am keenly interested to know what H&H and others here think WA should do now, to dig itself out out this mess?
    What I see is that Perth has the sort of infrastructure that suited a city of 1-1.3 million nicely in the late 1990’s, but over the past 20 years, its population has grown at third world rates of up to 3.2% pa and is now over 2.1 million. Building all the extra schools, hospitals, rail lines, expanded road system, water, power and sewerage (not to mention a new footy stadium), while also trying to maintain the built infrastructure has been sending the State broke.
    Population increases by 35% but revenue does not, yet the budget for infrastructure as risen astronomically.
    I don’t think that adding another half a million to the population will solve his problem. But I am sure there are clever people who have a solution, rather than just poking WA with a stick.

      • Grow the pie. But then ensure that those who contributed most to baking it get the largest slice, lest they take their business to another bakery. Or something along those lines. I think the key concept is growing pies and not worrying to much about how much gristle and sawdust is being used to pad it out.

    • In a weird way Perth’s problem is identical to China’s problem…it’s really just an external extension of China. Perth’s growth is all as a result of China’s emergence and their problems are the problems of anyone that has made their mark in the world by riding the dragons tail. Fortunately or maybe unfortunately today they are way too far along this road to turn around or even contemplate a change of course.
      Bottom line if China has a hard landing then Perth will crash twice as hard, however unlike HnH my money is still on China muddling through this mess. It wont be pretty as Chinese debt goes through the roof. That said I still see this (debt escalation) as an essential step towards the RMB usurping the Dollars dominance in International trade within the Asian region… it’s basically China’s answer to the Triffin Paradox/Dilemma.
      So where does that leave Perth…hanging on to the Dragon’s Tail, as tight as it possibly can.

      • There is little doubt that the WA economy now acts like the southern most Provence of China. But my question is where to now?
        It is interesting to point the finger and shout about what went wrong, but how could the tsunami of capital spending that descended on WA and was driven out of China, have been handled better?
        Could WA’s government have limited approvals for project expansion/development? Would that have been seen as increased sovereign risk and shouted down by shareholders? Should WA have a resource depletion protocol that says, for instance that a maximum of 2% of known Resources can be extracted every year for any (finite, non-renewable commodity?
        How would the WA government have been treated if it has set a budget based on US$50/t iron ore, when the price was over US$90/t? Would the bleeding hearts have screamed that the government was tightening spending in the face of growing need for welfare, healthcare, education services etc?
        Just how could the State have avoided that Dutch Disease? All academic now, so what is the way forward?

      • From My reading of your response, you already know the answer to the question you posed…you just dont like the answer.
        To be honest my only advice to anyone riding the dragons tail is..hang-on-tight!

      • Peter, get rid of the land supply restrictions, they will only get in the way of the economic adjustment by burdening the productive sectors.

      • By the way Peter, the WA govt acted as an arm of the mining lobby, including in its fight against the resources rent tax. Perth can cry a river now, but if it followed some sensible advice way back, it would not be in the predicament it is today. Booms and busts of commodities are normal and people like HnH who know about these things have been warning for years. The trouble is when a government is just an arm of an industry, then this is the result. If you want to see the difference between a well managed commodities boom and a badly managed one, look at Norway versus Saudi Arabia. The GFC was a warning shot but it was ignored. Even Rudd was warning that the mining boom was over, but was derided. There are no excuses.

      • Ergh… Darwin already has too many american army boys in it. They are politer than out local high vis bogans but we really dont need any more.

    • Naitonalising…. statilising Roy Hill.

      Confiscate Roy Hill of Gina and sell the ore in a “whatever it takes strategy”

      No one is worse off.

      • RP, why didn’t I think of that. The Venezuelan/Argentinean solution! However, that would be followed some years later by the sovereign debt default event and a decade of poverty for the 99%.

    • What did WA do to the remote communities that couldn’t ‘pay their way’? they shut them down.
      Ethically then you would do the same thing – shut WA down.

      Then you will get 90% of people who see Governments as businesses – that need to make money, make bank. You need to address revenues as well as expense and potentially clean out the balance sheet through a write down.

      Revenues
      For WA – there are so many good options as they have so many resources: sun, iron ore, gas etc. What does a monopoly company that is failing do? It jacks up its prices. So WA can ramp up its royalties %s.
      It can create new industries in value add – yet probably doesn’t have the capability to do so. This would involve using monopoly power to integrate full supply chain of its end inputs -> ie a simple policy to mandate that 50% of all base resource be used in the state would cause minerals businesses to partner with other business to make sure value add investment happened in WA.

      Expenses – not so much WA can do there.

      Balance Sheet – potentially can look at wrapping up the State’s debt into a high yielding bond and call it some exotic term such as Pilbara Pancake; sell it off to negatively yielding investors for a 1.5% yield which would be low enough for them to refi their current existing debt and make margin.

      Yet lets make an assumption here that not many like to make – cities and Governments aren’t businesses to be turned around. They are places to build communities, for people to thrive.

      What WA need to do is get Nat Fyfe a new leg. 3D printed out of pilbara ore would be the best bet.

  13. adelaide_economist

    Wow, look at that massive switch to government investment. But wait, the Treasurer Mike “IPA” Nahan is dead against that sort of thing isn’t he?

    Reality has a terrible habit of mugging ideologues.

  14. Mining BoganMEMBER

    Nahan is on the radio right now telling giant porkies. Local ABC.

    Oh, and TEH UNIONS!!!!