WA has downgraded its debt issuance in FY23 by a large margin and is actively repaying debt

Kieran Davies

Coolabah Capital

WA has downgraded its debt issuance in 2022-23 (ie, FY23) by a large $1.3bn (or 20%) from its September 2021 budget estimate of $6.4bn and by $0.6bn from its December estimate (see the table below). Like NSW, which is pre-emptively repaying $11bn of debt, WA is actively repaying $1.2bn of its debt. Victoria also recently announced it is creating a NSW-style debt retirement fund to be funded by asset sales that will be used for repaying COVID debts. CCI forecasts other states to follow suit and focus on debt reduction as interest rates return to more normal levels.  

State and territory budgets are improving across the country, but WA continues to outpace its peers by a margin, posting large and upgraded budget surpluses. WA has used the windfall from high commodity prices and a stronger-than-expected economy, as well as material delays to a very large infrastructure programme, to repay debt, reduce its borrowing, and fund more current spending.

The expected general government cash budget surplus for 2021-22 was upgraded by $2.1bn from $2.8bn to $4.9bn, while the small forecast deficit of $0.3bn for 2022-23 was revised up by $1.9bn to become a solid surplus of $1.6bn.

The more important non-financial sector cash budget – which incorporates WA’s large public corporations – also saw upgrades, with the forecast surplus in 2021-22 revised up by $2.6bn from $1.5bn to $4.2bn and the expected deficit in 2022-23 trimmed by $1.3bn from $2.5bn to $1.2bn. These are broadly in line with CCI’s bullish forecasts.

Following the release of the WA budget, WATC's revised issuance task revealed it had significantly reduced its FY23 task from its original estimate in September 2021 of $6.4bn to just $5.1bn (ie, $1.3bn or 20% lower) with the risk that FY23 issuance is cut further if WA's budget bottom-line continues to outperform expectations. In WA's case, most of the windfall reflects strong commodity markets, although there is the broader risk that all the states benefit from ongoing strength in consumer spending via upside surprises to the GST revenue paid by the Commonwealth.

The reduced issuance from WATC comes after a significant reduction in Victoria's funding task for FY23.  TCV's latest update of $21.3bn represents a $4.5bn (or 17%) reduction from the original $25.8bn estimate published in May 2021 and compares with the $23.6bn updated estimate published in December 2021.  WA also follows the NT’s equally impressive $0.8bn reduction in its issuance requirement for FY23. 

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Kieran Davies
Chief Macro Strategist
Coolabah Capital

Based in Sydney, Kieran Davies joined Coolabah Capital in 2020, an asset manager than runs over $7 billion in fixed-income strategies, and is responsible for macroeconomic research and investment strategy, contributing to the investment decisions...

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