Iron ore royalties are on track to pour $1.3 billion more into Treasury coffers than forecast in December, handing Treasurer Rita Saffioti a major windfall as she prepares to deliver her first Budget on Thursday.
Mining royalties – particularly from iron ore – have delivered a raft of major fiscal upgrades in recent years, helping propel WA to five successive operating surpluses.
The past three surpluses – dating back to 2020 – have all exceeded $5 billion, a remarkable run that has placed WA at odds with both the eastern states and the Commonwealth, whose finances were plunged deep into the red during the COVID pandemic.
A fourth surplus of at least $5 billion is now within reach after the steel-making commodity defied expectations it would retreat from the dizzying heights it has maintained since the start of the decade.
Fears of a slump in price were fuelled by an economic slowdown in China associated with the county’s ageing population and crashing construction sector.
The Cook Government’s mid-year review – released in December – pencilled in an expected iron ore price of $US104.20 per tonne across 2023-24.
But the key trading commodity has outperformed that forecast to average closer to $US119 a tonne with just eight weeks remaining in the financial year.
Treasury collects an extra $93 million in royalty payments for every $US1 that iron ore beats budget expectations.
That means WA is on course to reap around $1.3 billion more than expected at the end of December.
The mid-year review forecast an operating surplus of $3.7 billion in 2023-24. The latest iron ore bonanza is likely to propel WA to within touching distance of another bottom line at least $5 billion in the black.
Strong population and jobs growth, and a red-hot property market driving up real estate prices, are also likely to result in revenue upgrades in other areas like payroll tax and stamp duty.
However, the Cook Government has also unveiled a range of new spending in recent months – including $103 million in cash payments to the parents of school-aged children that will count against the current year.
Ms Saffioti this week confirmed the 2024-25 budget would upgrade long-term iron ore expectations, which under WA Labor have historically been set at an ultra-conservative baseline of $US66 per tonne.
That approach – in stark contrast to the final years of the Barnett Government – has provided Labor with a big buffer of “upside risk” to its revenue forecasts, routinely result in massive upgrades to the expected surplus.
Ms Saffioti highlighted the Commonwealth had increased its own iron ore projections – which, unlike WA, do not include the cost of freight – by $US5 to $US60 last year.
“Given what the Federal Government did last year in relation to its forecasts, and given that the average price continues to be a lot higher than our previous price, we’ve upgraded that forecast,” Ms Saffioti said.
“It’s still very, very conservative… in relation to what is happening currently with the price.
“But again, it’s more in line with what the Commonwealth has in their forward estimates.”
Iron ore was trading at around $US120 a tonne on Tuesday.