Western Australia Budget Deficit Shows Boom Turning to Bust – by Jason Scott and Benjamin Purvis (Bloomberg News – May 14, 2015)

http://www.bloomberg.com/

The state at the forefront of Australia’s biggest resources boom since the 1850s gold rush forecast a worsening budget deficit next year as plunging commodity prices hit revenue.

Western Australia’s government said its net operating deficit for the year ending June 30, 2016 will double to A$2.71 billion ($2.2 billion), from a A$1.29 billion gap in 2014-15, which was its first shortfall in 15 years. Economic growth is forecast to slow to 2 percent in the next fiscal year, the lowest rate since 1990-91, while net debt will peak at A$36.3 billion in June 2018.

Treasurer Mike Nahan is turning to asset sales to reduce debt as a 39 percent fall in iron ore prices in the past 12 months hits the state’s finances. Standard & Poor’s put Western Australia on notice last month that it may cut its AA+ rating due to falling mining royalties that are weakening its budget position.

‘There’s a sober realization now in the state that things have changed,’’ said Michael McLure, a professor of economics at the University of Western Australia Business School. “The government now has a growing debt problem that it’s trying to manage at a very difficult time.”

Moody’s Investors Service said the projected increase in the state’s debt burden is a credit negative. S&P said the state’s AA+ rating remains on negative watch and it expects to come to a decision on the rating by about mid-July.

Roller-Coaster Ride

State Premier Colin Barnett, who said in 2010 that “China is giving us the ride of our lives,” is now seeing the other side of the resources roller-coaster as the nation’s once-insatiable hunger for commodities wanes. His government’s challenge to counter slowing growth and declining revenue is replicated on a national scale by his conservative ally Prime Minister Tony Abbott.

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