Western Australian Prime Minister Mark McGowan is set to achieve a record budget surplus of around $ 5 billion at a time when governments around the world are inundated with debt and deficit.

Driven by skyrocketing iron ore prices and soaring property taxes, WA’s finances are said to have improved dramatically since the pre-election budget update in March, when the Treasury forecast a $ 3.1 billion surplus. dollars.

The expected result for the 12 months leading up to June 30 prompted state opposition to say that WA was “the only jurisdiction in the world to benefit from COVID-19.”

Mr McGowan, who also named himself treasurer following Labor’s landslide victory in the national election, would not be attracted by the size of the surplus.

The expected wealth to WA comes just days after the federal government unveiled a $ 161 billion deficit in its budget, which also forecast net debt to rise by $ 1 trillion by 2025.

At the heart of WA’s fortune has been the price of its most valuable export commodity, iron ore, which has reached all-time highs of over US $ 230 per tonne in recent weeks on insatiable demand for China.

Compared to a forecast of $ 7.4 billion in May of last year when budgeting, WA’s planned iron ore royalty take has increased by an additional $ 2.5 billion in documents. Treasury officials.

But it is understood that the rally in iron ore prices since March has led to a new windfall that could bring up to $ 2 billion more into state coffers.

Each year-over-year increase in the price of iron ore in US dollars increases WA’s bottom line by $ 83 million.

The budget assumes that prices will average US $ 96 per tonne in 2020-2021 before falling to US $ 64 per tonne from forecast estimates.

Use it wisely, warns the opposition

In addition to the royalty windfall, WA would also benefit from an increase in stamp duties and property taxes as the state’s housing market experiences its strongest period in nearly a decade.

Payroll taxes and GST receipts are also seen to be on the rise due to dynamic economic conditions.

Shadow Treasurer Steve Thomas said he expected the surplus to be “at least” $ 5 billion, though he argues the result owes more to luck than good management .

He said that while the government “shouldn’t be embarrassed” about running such a large surplus, it was imperative that the money be spent wisely.

“We’re looking at $ 10 billion in iron ore royalties, half of which is state profit,” Dr Thomas said.

“We are far too focused on the boom and bust iron ore economy, and if we do not invest in diversifying that economy into other industries, we are doomed to go through this cycle of boom and bust. recession forever. “

Unparalleled Financial Health of WA: Economist

Economist John Nicolaou, executive director of consultancy firm ACIL Allen in WA, said he expected the surplus “to be north” of $ 5 billion based largely on the performance of the ore of iron.

Mr Nicolaou said WA’s financial health was unmatched anywhere in the world, saying “I can’t think of another jurisdiction with a surplus right now.”

“We are living in very happy times and have been isolated from the worst of the global pandemic.”

But Mr Nicolaou said the revenue stream was unsustainable, while noting that the debt was still rising because the government was spending so much on capital investments.

It’s not just iron ore, says McGowan

Mr McGowan said “the higher than expected price of iron ore is welcome but does not translate directly into a surplus.”

The prime minister noted that while revenues were up, spending had also increased to offset the economic effects of the coronavirus.

The state’s final fiscal position will not be known until later this year, he said.

“The McGowan government’s decision to keep the resource sector operating safely throughout the pandemic has not only provided economic benefits, but has also created jobs,” said Mr. McGowan.