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Department of Treasury and Finance Government of Western Australia Infrastructure and Fiscal Federalism CEDA Infrastructure Series Wednesday 21 September 2005 Timothy Marney Under Treasurer Overview Economic and fiscal outlook Public sector capital investment Public Private Partnerships (PPP) Policy Dealing with the Commonwealth – Poor deal for WA – Disincentives for development – Regulatory issues Department of Treasury and Finance Government of Western Australia Characteristics of the State Economy Mining sector – 18.0% of State economy vs 4.5% nationally Population Growth – 1.6% vs 1.2% nationally Economic Growth – higher than national average 4.4% vs 3.9% over last ten years Per capita GDP 15% above national average Contributes 30% of Australia’s merchandise exports Department of Treasury and Finance Government of Western Australia Economic Outlook for WA 2002-03 2003-04 2004-05 2005-06 Actual Actual Estimated Budget Actual Estimate Economic Growth (%) 4.8 7.5 5.25 4.5 Employment Growth (%) 2.5 1.7 4.2 (a) 2.0 Unemployment Rate (%) 6.0 5.7 4.7 (a) 4.75 Wages Growth (%) 3.7 3.2 4.3 (a) 3.75 CPI Growth (%) 2.7 2.1 3.2 (a) 2.5 Figures sourced from the 2005-06 Budget Papers, ‘Economic and Fiscal Outlook’ Department of Treasury and Finance Government of Western Australia (a) Outcomes Economic Growth Rates by Jurisdiction 2003-04 Actual 8 2004-05 Estimate 2005-06 Estimate 7 Economic Growth (%) 6 5 4 3 2 1 0 NSW VIC Department of Treasury and Finance Government of Western Australia QLD SA WA TAS NT ACT AUS Business Investment Current and Prospective Investment Projects June 2005 $104 Western Australia $79 New South Wales $69 Queensland $49 Victoria $21 South Australia $14 Northern Territory $8 Tasmania $4 Australian Capital Territory 0 20 40 60 $billion Department of Treasury and Finance Government of Western Australia 80 100 120 Net Operating Balance General Government 1,400 $ Million Forecast 1,200 1,000 800 600 400 200 0 -200 -400 -600 1993-94 1996-97 Department of Treasury and Finance Government of Western Australia 1999-00 2002-03 2005-06 2008-09 Operating Revenue Growth General Government 12 Percent Forecast 10 8 6 4 2 0 -2 1994-95 1996-97 Department of Treasury and Finance Government of Western Australia 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 WA Capital Works Program 5 4.75 Actual Expenditure ($m) 4.14 4 3.11 3 2.88 3.28 2.98 2.89 2001-02 2002-03 2 1 0 1999-00 2000-01 Year Department of Treasury and Finance Government of Western Australia 2003-04 2004-05 Preliminary Outcome 2005-06 Budget Estimate 2005-06 Capital Works Program Western Power 13% Public Transport Authority of Western Commissioner of Australia Main Roads 11% 6% Law and Order 5% Education and Training 5% Health 5% Water Corporation 15% State Housing Commission/ Housing and Works 21% Department of Treasury and Finance Government of Western Australia Other 16% Western Australian Land Authority 3% Department of Treasury and Finance Government of Western Australia Department of Treasury and Finance Government of Western Australia Capital Spend by Jurisdiction COMPARISON BETWEEN JURISDICTIONS Capital expenditure per capita 1998-99 Capital expenditure per capita 2003-04 $ $ 1,005 709 626 1,540 482 678 1,270 954 697 1,095 556 1,267 Western Australia New South Wales Victoria Queensland South Australia Tasmania Department of Treasury and Finance Government of Western Australia Capital Population Real economic spending annual average annual average annual average growth since growth since growth since 1998-99 1998-99 1998-99 % % % 6.2 7.2 3.4 -4.7 3.4 13.7 1.4 1.0 1.2 2.1 0.5 0.4 Data sourced from Australian Bureau of Statistics (catalogue 5512.0) 3.8 2.8 3.3 4.8 3.0 1.4 What Capacity Do We Have to Fund Infrastructure Financial Targets: Net Debt to Revenue Operating Surpluses Priorities arise during and outside the normal budget process. Around $2 billion in proposals in the pipeline and will need to be considered in the near future. Department of Treasury and Finance Government of Western Australia Partnerships for Growth Public Private Partnerships (PPP) Policy Policy launch in December 2002 Document available on the Department of Treasury and Finance website at : www.dtf.wa.gov.au The policy position is broadly consistent with other jurisdictions This topic was covered at the last CEDA lunch forum Department of Treasury and Finance Government of Western Australia The Funding Task The infrastructure development funding task is relatively larger in Western Australia than nationally As the demand on State funds increases for large infrastructure projects, the Government will continue to explore PPPs as a procurement delivery option Commonwealth funding is also important Department of Treasury and Finance Government of Western Australia Dealing with the Commonwealth Problems with structure of Federation Poor deal for WA on infrastructure Wrong type of C'wth project assistance Other disincentives for development – the Grants Commission Regulation Issues Department of Treasury and Finance Government of Western Australia Fundamental Elements of Efficient Federalism Subsidiarity – authority exercised at the lowest level that produces efficient results Governments accountable to their electors Co-operation on national interests Clear roles for each level of government Financial independence Central government assistance that preserves State government motivations to perform Department of Treasury and Finance Government of Western Australia WA’s Contribution to the National Economy Goods and Services Exports 2003-04 NT $2.6b QLD $27.9b WA $39.3b SA $9.6b NSW $38.8b VIC $20.8b TAS Department of Treasury and Finance Government of Western Australia $2.3b WA’s Contribution to the Federal Budget Net Fiscal Subsidy 2003-04 NT -$2,274m WA $2,916m Department of Treasury and Finance Government of Western Australia SA -$2,045m QLD -$3,067m NSW $4,831m VIC $2,572m TAS -$2,934m Poor Deal for WA $ per capita Total Spending on Infrastructure 2003-04 (per capita) 2000 1500 1000 500 0 WA Department of Treasury and Finance Government of Western Australia Cwth on WA Cwth on Rest of Australia Poor Deal for WA The Federal Government contribution to infrastructure funding is poor, particularly in regard to export related infrastructure where significant benefits from exports accrue to the Commonwealth. The State Government is looking for a more mature partnership with the Federal Government in this regard and is pursuing a more cooperative approach. Engineers Australia, 2005, Western Australian Infrastructure Report Card Department of Treasury and Finance Government of Western Australia AUSLINK 10% of population 30% of exports 25% of National Hwys 8% of AUSLINK funding Department of Treasury and Finance Government of Western Australia Poor quality in regional areas Department of Treasury and Finance Government of Western Australia WA having to contribute to C’wth responsibility Department of Treasury and Finance Government of Western Australia WA dam inflow fallen from 338 GL to 120GL Department of Treasury and Finance Government of Western Australia NWI mainly relevant to Eastern States water rights issues $m North West Shelf Royalties (2003-04 - $563 million) 250 200 150 100 50 0 C'w th NSW Department of Treasury and Finance Government of Western Australia VIC QLD WA SA TAS ACT NT CGC Does not recognise our spending on Burrup Department of Treasury and Finance Government of Western Australia Who Benefits From Projects? Net Benefits of Burrup Project 2003-04 NT $4.87m WA -$60.81m QLD $97.25m SA $37.47m VIC $122.64m Department of Treasury and Finance Government of Western Australia NSW $165.72m ACT $7.90m TAS $11.88m Cwth 586.43m Who Benefits From Projects? Net Benefits of Gorgon Project 2003-04 $b 12 $11b 9 6 3 $300m 0 Commonwealth Department of Treasury and Finance Government of Western Australia WA Wrong Type of Assistance Syntroleum GTL Resources Methanex Department of Treasury and Finance Government of Western Australia Right Type of Assistance Company B Company C Company A Common User Water Supply Access Roads Company E Department of Treasury and Finance Government of Western Australia Company D Disincentives for Development Commonwealth Grants Commission CGC aims to equalise States’ fiscal capacity, having regard to: – expenditure requirements; and – revenue raising capacity Department of Treasury and Finance Government of Western Australia Access Regulation Centralised Light handed Decentralised Heavy handed Address in NCP review Department of Treasury and Finance Government of Western Australia Way Forward Need for Commonwealth to better understand WA needs Need for Commonwealth to better understand its interest in supporting WA Public debate to put pressure on Commonwealth Dialogue with Commonwealth Department of Treasury and Finance Government of Western Australia Conclusion Massive development in WA WA major contributor to nation WA government doing all it can to provide necessary infrastructure Commonwealth must provide greater support Federal structures such as CGC must be reformed Department of Treasury and Finance Government of Western Australia