The WA Labor government is set for a fight with unions in 2017 after Treasurer Ben Wyatt said he was considering imposing a wage freeze for public servants to deal with a budget hit by a new $1.2 billion black hole.
Under-treasurer Michael Barnes revealed the already beleaguered budget would be $1.2 billion worse off than predicted a month ago before Labor's election win because of falls in its share of the national GST pool by nearly $1 billion and more than $200 million in falling land taxes.
Mr Barnes painted a bleak picture of the state's finances, with net debt now forecast to peak at a massive and record $42.3 billion by 2019-20, up from $41.1 billion.
Premier Mark McGowan described the state's finances as "the worst since the Great Depression" and Mr Wyatt warned WA's public servants - the best paid in Australia - that he would look at their wages because it represented 40 per cent of government spending.
A wage freeze by a Labor government would follow the Liberal National government last year capping public sector annual pay rises at 1.5 per cent.
"I am looking at the cost of salaries and wages ... I can't quarantine the biggest spend of government from consideration," Mr Wyatt said.
"(A pay rise of) 1.5 per cent is generous, the under-treasurer highlighted that we have in Perth very low inflation so 1.5 per cent is certainly a real wage rise. It is not dramatic, I accept that, but we are at the end of what has been over the last decade very strong wage rises in Western Australia."
Teachers and police officers are among public sector employees due to negotiate new enterprise agreements this year.
Community & Public Sector secretary Toni Walkington said 1.5 per cent was an extremely modest increase and "any wage freeze needs to be completely taken off the table".
Servicing the interest on the state's debt was costing more than the annual funding for entire departments such as Corrections and was forecast to peak at $1.2 billion a year by 2019-20 and WA government bonds are considered riskier than those of the other states.
Mr Barnes described the state's finances as "pretty grim" and delivered a presentation showing record falls in payroll tax revenue for the government, weak economic growth, inflation, high unemployment and underemployment.
One of Mr Wyatt's first jobs when parliament resumes next month will be to pass a new Loan Bill and borrow more money to pay public servants.
Opposition Leader Mike Nahan accused the government of exaggerating the state's financial problems and hiding the fact that improved iron ore prices were helping because it was "softening up" people to break its election promise not to introduce new taxes.
"The public of Western Australian should get ready for massive increases in electricity, water, public transport and other taxes, and public servants get ready for real wage cuts under a McGowan government," he said.
