2014 wrap up – Qld Govt excelled on budget management, but Adani & Tatts deals questionable

The Queensland Government’s major economic policy achievements in 2014 included:

  • strong budget management, particularly through expenditure restraint, with the Mid Year Fiscal and Economic Review reporting that expenses in 2014-15 are expected to now be $720 million lower than budget estimates (although this money could evaporate as we move closer to the election); and
  • maintaining a commitment to privatisation of government-owned assets, even though it has had to back down from outright sales to leasing out assets instead, partly because the original Strong Choices campaign was weak and unconvincing.

The Government, however, failed to distinguish itself on two major issues.

First, the 30 year exclusive retail wagering (re. TAB shops) deal with Tatts Group is bad policy. As I noted in a post earlier this year, it was unwise for the Government to lock itself in to such an agreement prior to the QCA completing its industry assistance inquiry. The deal restricts competition and provides monopoly profits for Tatts Group. It hardly seems justifiable on social policy grounds because it doesn’t appear to limit the possibility of harmful gambling in any way. In its 2010 gambling inquiry report, the Productivity Commission noted (p. 38):

A more diverse retail wagering sector would increase the benefits that consumers receive from greater competition and greater choice. This need not increase overall community access to gambling, and new entrants would, at a minimum, be subject to the existing industry harm minimisation requirements.

While Tatts Group has committed to providing some funding for the racing industry as part of the deal, the Productivity Commission has correctly noted there are alternative funding models (e.g. a product fee/levy) and there is no reason to restrict competition in retail wagering.

Second, there is an unclear basis for the Government’s strong commitment of several hundreds of millions of dollars (exact amount unannounced) to Adani’s Galilee basin projects, with some critics arguing the projects are unviable (e.g. see the Brisbane Times report Newman to back Galilee projects with infrastructure spending).  I’m not in a position to comment on the viability of the projects, but I would note that, if it’s the case they would be viable for Adani only with Queensland Government support, the question is then whether a cost-benefit analysis would show a net benefit to Queensland of the Government’s investment.

A cost-benefit analysis would need to consider the benefits to Queenslanders from the additional economic activity, which would partly be realised as greater royalty revenues, but would also need to consider the full cost of the Government’s investment and any environmental impacts. Also, in assessing benefits, it is important to consider that Adani is a foreign company and profits would be repatriated overseas. It’s possible the Government’s investment may pass the cost-benefit test, but I’d like to see the analysis before committing.

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