Volatile iron ore revenues and Western Australia’s small share of the GST are to blame for the drop in the state’s credit rating, the treasurer says.
Moody’s Investors Service has downgraded WA’s rating from AAA to AA1, and changed the outlook from negative to stable.
The downgrade reflects the state’s ongoing deficit, the deterioration in its debt metrics and a growing risk that the trend might continue for some time.
“The challenges related to narrowing the budget gaps include greater volatility in the state’s revenue base, reflecting its increasing reliance on royalty income, expenditure pressures related to the rapid expansion in the state’s economy and population, and a weak policy response to the deteriorating financial and debt position,” Moody’s said in a statement.
Moody’s said the state government’s decision not to slow the pace of expenditures without offsetting improved revenue trends could lead to downward pressure on the ratings.
Treasurer Mike Nahan said the downgrade was disappointing but not a surprise, and Moody’s reasons were understandable.
But he said WA had to live within its means and the state’s GST distribution share remained a problem considering iron ore royalties had gone down so sharply and unexpectedly.
“It’s simply no longer sustainable that Western Australia can continue to pour money into Canberra and other states given these lower iron ore prices,” Mr Nahan told reporters on Monday.
The distribution of GST for WA has fallen from a return of 93 cents per $1 in 2007-08 to 37 cents in 2014-15.
The treasurer said WA was highly dependent on iron ore royalties, which provided 20 per cent of the state’s income, but the price had fallen more than 30 per cent since the budget was handed down earlier this year.
“We are committed to balancing the books,” Mr Nahan said.
He admitted it would be difficult to get the AAA credit rating back while the state was so reliant on volatile mining royalties and not getting a greater share of the GST.
Mr Nahan added that the premier would announce an asset sale program later this week and further measures would be considered in the mid-year review and in developing the 2015-16 budget.
Opposition spokesman Ben Wyatt said that under Colin Barnett’s government, the state debt had gone from $3.6 billion in 2008 to an expected $29 billion in 2017-18.
Mr Wyatt said the premier should step down because he was more focused on his infrastructure legacy than handing over a good set of books.
“The next generations of West Australians are going to have to make do with either high taxes or fewer services,” Mr Wyatt said.
Moody’s rating drop follows similar action by Standard and Poor’s, which cut WA’s credit rating from AAA+ in September last year to AA+.