Significant Issues

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Economic Conditions and Outlook

Supported by solid growth in exports, Western Australia’s economy is forecast to have grown by 2% in 2018‑19, despite a deterioration in the global and national economic outlook. Growth in the domestic economy was soft, primarily reflecting that households across Australia have been impacted by a tightening in access to credit and declining house prices. A final year of contraction in business investment as LNG projects were completed, also acted as a drag on growth in the domestic economy.

Growth in Gross State Product is expected to accelerate to 3.5% in 2019‑20, and 3% per year from 2020‑21 onward, with the domestic economy expected to become the major driver of growth. A substantial lift in business investment is expected in 2019‑20, for the first time in seven years, supported by a new wave of resource sector projects (mostly iron ore and lithium).

The rebound in business investment, coupled with the State Government’s increased investment in METRONET and road projects, is expected to support a lift in employment growth in 2019‑20. Employment growth is expected to strengthen further in the out‑years, reinforced by an increase in residential construction activity as housing supply tightens (due to the current low levels of dwelling construction) and population growth drives demand for new housing. A stronger labour market, increased population growth and improved consumer confidence are expected to underpin a lift in household consumption, dwelling investment and overall growth.

Chevron-operated Wheatstone LNG plant at Ashburton North Chevron-operated Wheatstone LNG plant at Ashburton North.

Public Sector Reform

Treasury is a key participant in the Government's drive to change and reform the public sector for the benefit of all Western Australians. During 2018‑19, Treasury played a lead role in progressing a number of initiatives as part of the whole‑of‑government public sector reform program. Highlights include:

Strengthening Budget Systems and Structures

Treasury has progressed a series of reforms to strengthen Budget processes and institutions and support a return to stronger and more sustainable State finances. Reforms include a range of changes to ensure a more strategic and outcomes‑focused approach to managing the State's $30 billion annual Budget, and better asset management frameworks that support improved asset management decision‑making, transparency and accountability for public finances.

An extensive program of consultation with agencies and Ministers has been undertaken as part of a review of the Strategic Asset Management Framework (SAMF). The review of the SAMF is intended to ensure asset management guidelines are contemporary, targeted at users' needs and clearly articulate expectations.

A new Treasurer's Instruction on variances in capital expenditure was implemented in August 2018 to provide increased transparency in the management of variances in expenditure on capital works.

Financial Management - Functional Leadership

Treasury has pursued a number of new and ongoing initiatives to enhance financial management capability across the public sector. A new financial management training program aimed at the non‑technical public servant has been developed and will be rolled out across the sector in the second half of 2019. In addition, bi‑annual Chief Finance Officers (CFO) Forums have focused on specific accounting standards and been restructured to facilitate question‑and‑answer sessions and better engagement with CFOs and their teams.

Government Goal: Sustainable Finances

Iron Ore Pricing

The iron ore price was exceptionally volatile over the course of 2018‑19 due primarily to the impact of supply disruptions in Brazil and policy stimulus in China. There is considerable uncertainty regarding how long each of these dynamics will last. This makes forecasting the iron ore price even more challenging than usual. Reflecting this heightened uncertainty, Treasury implemented a relatively minor (but important) change to its forecasting methodology in the May 2019 Budget, whereby the iron ore price is assumed to transition more rapidly to the medium‑term Consensus Economics forecasts. This change is considered prudent given the highly uncertain outlook for the iron ore market.

Graph on iron ore pricing from 2009-10 to 2018-19 Iron Ore Price 200 150 100 50 $US/t CFR* 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Min Max 186.5 191.9 181 158.9 142.8 98 68.7 94.5 80 118 76.1 117.6 116.9 86.7 89 46.7 37 53 57.4 62.5
*Iron ore prices quoted inclusive of cost and freight, essentially it means the cost of iron ore delivered to North China.
Government Goal: Sustainable Finances

Energy Transformation Implementation Unit

Energy Transformation Strategy

Our electricity system is experiencing an unprecedented transformation. More households and small businesses than ever are installing solar and battery systems to take control of their electricity bills. At the same time, large‑scale renewable generators are supplying an increasing amount of our electricity needs.

Large and small-scale renewables and batteries offer great opportunities for low cost, low emissions energy. However, the intermittent and uncontrolled nature of these energy sources is presenting challenges to the power system.

Traditional electricity supply chain Figure 1. Traditional electricity supply chain New electricity supply chain Figure 2. New electricity supply chain

To manage these challenges, on 20 May 2019, the Minister for Energy established the Energy Transformation Taskforce to implement the Government’s Energy Transformation Strategy to deliver a cleaner, more affordable and more reliable electricity supply to Western Australians for decades to come.

The Energy Transformation Strategy is a two‑year program of work across three interrelated work streams, including the development of the first Whole of System Plan and a Distributed Energy Resources Roadmap along with changes to Foundation Regulatory Frameworks, to support the integration of growing levels of renewable and distributed energy sources.

The Department of Treasury established a dedicated unit – the Energy Transformation Implementation Unit – to support the Taskforce in delivering the Government’s strategy.

Members as at 30 June 2019 (from left to right): Katharine McKenzie, Zaeen Khan, Brett Sadler, Stephen Edwell, Hon. Bill Johnson, Michael Court and Kate Ryan Members as at 30 June 2019 (from left to right): Katharine McKenzie, Zaeen Khan, Brett Sadler, Stephen Edwell, Hon. Bill Johnson, Michael Court and Kate Ryan.