SYDNEY : Western Australia's almost unique status as a COVID-free state is allowing it to boast record-breaking budget surpluses and fund a binge on infrastructure, all without recourse to the government credit card.
While other states are knee-deep in deficits, Western Australia (WA) reported a record surplus of AUS$5.6 billion (US$4.13 billion) for the year to June 2021, or US$2,097 for each of its 2.67 million inhabitants.
That was also the biggest surplus of any state ever.
"The WA budget, as it currently stands, would have held up as a 'good' budget from a credit perspective before COVID," said CBA economist Philip Brown. "In a post‑COVID world it looks almost too good to be true."
In part, this is due to WA's success in containing the coronavirus through tough border rules. The state has zero local cases and almost no domestic restrictions, while the more populous states of New South Wales and Victoria are in various stages of strict lockdowns. [nL1N2QC00P]
WA also holds vast quantities of easily-mined, high quality iron ore which fetched record prices earlier this year thanks to China's insatiable appetite for steel for infrastructure.
The state had originally assumed iron ore prices would average US$97 a tonne in 2020/21, but the actual was almost US$155, a bonanza given every US$1 adds AUS$82 million to revenue. While prices have since fallen sharply, they remain above the original forecast.
Geography plays a part here. WA is far closer to China than Brazil, Australia's main competitor in iron ore, while the state is also isolated from the coronavirus hot spots of NSW and Victoria.
The windfall allows the state to spend big on everything from roads and rail, to fresh water and hospitals, all while keeping debt in check, a rare feat that won the approval of ratings agency Moody's.
"Strong iron ore export volumes and prices, as well as the effective management of the pandemic, underscore the stark contrast between the Western Australian economy and its domestic peers," said Moody's in a note.
While Moody's cautioned WA was rapidly approaching "peak cycle", it said the state should still enjoy surpluses out to 2025.
As a result, WA now expects net debt to decline to AUS$37.5 billion in 2021/22, almost AUS$10 billion lower than projected a year ago.
Such a limited borrowing requirement, combined with a credit rating a notch under triple A, makes its bonds popular.
WA's last benchmark sale of 2030 paper attracted 33 bidders and a record 38per cent of the AUS$1 billion issued went to central banks, fund managers and commercial banks.
All this good fortune is not without cost. WA has already earned the envy of other states which are certain to argue it should get less from the federal government when proceeds from the national sales tax are divvied up next year.
And having closed borders may keep COVID out, but it has also led to a dearth of skilled labour and costly delays to major public projects.
(US$1 = 1.3572 Australian dollars)
(Reporting by Wayne Cole; Editing by Ana Nicolaci da Costa)