Interpreting the fiscal state of affairs
Queensland Budget 2018–19
by Professor John Wanna
Queensland Treasurer Jackie Trad is the new Neo-Keynesian pinup girl — spending to the maximum to prop up economic growth and creating government-funded jobs across Queensland. She claimed in her briefing to stakeholders that she was ‘unashamedly’ authorising a massive capital injection aimed specifically at job creation given the expected low levels of business investment and limited growth prospects.
The Premier Annastacia Palaszczuk claimed that proportionally the Queensland government was investing almost twice the amount of capital the Commonwealth had indicated it would spend over ten years. The government strategy transfers debt to future generations who are currently paying some $3.5 billion per annum in debt servicing charges. It’s a long time since Queensland was net debt free, and long gone is a sense of fiscal responsibility and a commitment to budgetary repair that characterised Queensland governments.
The 2018–19 Budget, delivered on Tuesday to a slightly anxious Parliament, was the Palaszczuk government’s fourth, but Treasurer Jackie Trad’s first attempt at delivering a complex fiscal package aimed at papering over the many economic backwaters of the state. As the new Treasurer, Trad demonstrated she had a command of the overall strategy and was across the detail, was impressive in her eloquent delivery. But more importantly she also had some good news to report to Queenslanders — a budget back to a surplus, albeit an immediately evaporating one.
Population increase
With Queensland’s population now exceeding 5 million, both the Premier and Treasurer were basking in the glory of producing a good budget outcome, but conscious of the challenges ahead as the state transforms from an economy based on mines and beaches, to a knowledge-managed workforce prospering in the twenty-first century.
The present budget seems ostensibly impressive. More investment, more projects, more jobs, and slightly better economic growth prospects. But it is also a very tightly stretched budget trying to be all things to all people. The main selling message is ‘delivering for Queensland’, by a government prepared to be activist in circulating capital. The opposition has a point when it argues that much of the government’s capital spending is catch up politics, making up for some years of inadequate investments.
In the current year, the government managed to produce a modest surplus of $1.512 billion (up from an expected $0.485 billion in late 2017). However, this wafer thin margin mostly disappears in Budget 2018–19, and in addition the government is proposing to spend almost $1 billion more than last year, while receiving declining revenues of $521 million less than the previous year. The expected cash surplus for this year’s budget is a mere $148 million which can easily evaporate.
Expenses
Government expenses are growing at an annual rate of 2.9%, a figure higher than inflation, reflecting increased workforce costs, as well as greater demand for health and education services. In a further setback, the state is expected to get $415 million less from the Commonwealth in GST revenues in the budget year, due to the Grants Commission recommending that the state had a ‘higher fiscal capacity’ than previously thought (i.e.: it can pay its way more adequately). The government is predicting a fiscal balance of minus $3.033 billion for the budget year, with a string of fiscal balances remaining in deficit past 2022.
Capital Works
The big news in the Treasurer’s strategy, now that the government has managed to form a majority in parliament, is a near-record capital works spend. The government plans to spend $45.8 billion on new capital projects, but stretched over four years. In the present budget year only somewhere between $9.922 billion and $11.583 billion is actually committed, accounting for a good one-third of additional borrowings. This figure is dependent upon contracts being signed on time, contractors making progress, weather permitting.
Almost half of this massive infrastructural spending is directed to roads (some $21.7 billion over four years) but again only $4.9 billion is actually committed to roads funding in the present budget, and much of this for road repairs and widening projects. The government claims 65% of this infrastructural spending will take place outside the Greater Brisbane region, even though south east Queensland still receives nearly $6 billion from the approximately $10 billion committed in the budget year.
To pay for its expansive capital works program, the government is borrowing $32.311 billion in this fiscal year, increasing to $42,290 billion by 2022. If all new capital projects are funded from new borrowings, this means that a still considerable component of the increased debt is for recurrent purposes, perhaps more than $21 billion going into increased services and administration. The increases in borrowing going forward will see public sector debt rise from over $70 billion to $83 billion by 2022.
Trad’s first budget is deliberately expansionary, uses public debt to pay for things we should be funding through recurrent funds as if money grows on trees. Future generations may not be so kind to the budgetary records of the last three state governments who seem addicted to debt.
ABOUT THE AUTHOR
JOHN WANNA
Professor John Wanna is Sir John Bunting Chair of Public Administration at the Australia and New Zealand School of Government (ANZSOG). He holds a joint appointment with Griffith University and Australian National University (ANU), Canberra.
Author of over fifty books, Professor Wanna is a regular political commentator on TV (ABC, SBS, Sky, Channels 9 and 7) and the print media (The Australian, The Courier-Mail, The Saturday Paper, the Australian Financial Review, and The Conversation). He regularly appears as an Australian politics expert on other media outlets (Bloomberg, the New York Times, the Daily Mail, AFP, Reuters, and Fairfax media).
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