The WA Treasurer has refused to guarantee a surplus this financial year as plummeting iron ore prices threaten to punch a hole in the state budget.

Mike Nahan today handed down the annual report on state finances, which revealed a larger than expected surplus of $719 million for the last financial year.

However, he said the volatile iron ore price had put a question mark over whether a consecutive surplus was a possibility.

"Until we get closer to the end of the year, I can't say that," he said.

"But when you have a decline of, I think, in the vicinity of 5 to 6 per cent of your revenue, that's a real challenge."

The commodity's price has dipped below $US80 a tonne, more than $40 less than the figure WA Treasury used to calculate expected revenue for this financial year.

The drop has led to a state budget hole in excess of $1.5 billion.

Premier Colin Barnett said in June the Government would deliver a surplus regardless of the price fall, flagging potential budget cuts instead.

Today's glimpse of the state's financial position revealed net debt totalled $20.8 billion, or 55.2 per cent of revenue, which was slightly lower than forecast.

Revenue grew by 8.7 per cent, boosted by a cap on salary growth for public sector workers and reduced hiring.

Salary growth was capped at 5.2 per cent, the lowest level in 13 years.

Dr Nahan said the state faced "a big challenge" three months into the 2015 financial year, with the iron ore spot price well below budget estimates.

The benchmark price hit a fresh five-year low of $US79.80 overnight, after the Chinese government indicated it was unlikely to implement an aggressive stimulus policy to prop-up construction.

Dr Nahan said he never imagined the price would fall so low.

"No-one predicted anywhere near this slide, I certainly didn't, and it's actually having ramifications across the stock exchange with iron ore miners declining and other things," he said.

"So it's getting to the point of real worry."

Iron ore royalties account for 20 per cent of WA's income.

"We're getting to crunch time," Dr Nahan said.

However, he said the Government had not made any decisions to cut spending yet.

The Government will announce its response to the falling iron ore price in its mid-year review in December.

Aus miners 'flooding market' to knock out Chinese competition

Slower growth in China is one driver but Australia's big players are far from blameless.

It is claimed they are flooding the market in a bid to knock out high-cost Chinese producers.

But it is also squeezing the margins of WA's junior miners.

Mr Nahan said it was having wide-ranging ramifications.

"This is an exercise on the big side of town to force some of the marginal players, particularly in China, out," he said.

The prices were meant to have sent marginal Chinese producers to the wall by now, but they were clinging on.

Morgans Financial Services' James Wilson said it was with the helping hand of the Chinese government.

"It could be anything from a tax break to rebates or anything like that, they could even be producing at a loss purely to produce ore for their own steel mills to keep cash flow running," he said.

"There would be some strategic purpose to keeping on with high cost production in China.

"They don't want to be completely exposed to 100 per cent imported ores from the likes of us and be a price taker rather than a price maker, so a lot of that too-ing and fro-ing is going on at the moment."

He said it was not clear how long the Chinese government would continue to prop up its iron ore miners but he believed commonsense would eventually prevail.

"At the moment, they've obviously got a lot of money in the bank in their foreign reserves," he said.

"But eventually sense will take hold and eventually a lot of that very marginal production that's running under water in China will actually be displaced by imported ores."