Nahan said the Moody’s decision to downgrade the state’s rating from AAA to AA+ was disappointing, and called on the federal government to re-examine its GST distribution policy to be more fair on WA following the decline of the iron ore price over the last 12 months.
“The GST system is broken, the state is increasingly relying on volatile iron ore revenue because the Commonwealth is redistributing GST revenue to other states,” Nahan said.
Moody’s downgraded the WA Treasury on Monday, reflecting the state’s ongoing deficit position, the deterioration in its debt metrics, and “a growing risk that this trend may not be reversed soon”.
“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 its rating action note.
Moody’s decision followed Standard & Poor’s similar action in September last year.
“This decision is disappointing, but as we have said many times recently, the government is determined to regain the state’s triple-A credit rating,” Nahan said.
Nahan believes the government has demonstrated its commitment to regaining its AAA rating via the $8.6bn Fiscal Action Plan, announced in the 2013/14 state budget.
Even with this plan in place, though, Moody’s says the WA Treasury is overestimating its own position, because it is expecting too much from its mining royalties in 2014/15.
The state is forecasting an average iron ore price of US$122 a tonne in 2014/15, substantially higher than both the (federal) Bureau of Resources & Energy Economics (US$97 a tonne) and Moody’s itself (between US$95 and US$105 a tonne).
Iron ore closed overnight at US$88.90 per tonne, a two-year low.
“The state’s assumption on royalties is underpinned by a fairly optimistic forecast for iron ore prices,” Moody’s noted.
Nonetheless, Nahan is sure that the state needs more help from the Commonwealth if its credit rating is to be restored.
“I call upon my colleagues in Canberra to work with me in addressing this situation immediately,” he said.
The distribution of the GST for WA has fallen from a return of 93 cents per $1 collected in WA in 2007/08 to just 37 cents in 2014/15, according to the state.