In yesterday’s post I noted that the Queensland Government has become increasingly reliant on volatile royalties revenue, and that its major revenue sources of Commonwealth grants and taxation revenue have been growing significantly slower than expenses in recent years. I discussed how slower growth in grants revenue is related to slower GST revenue growth, and reinforces the case for broadening the GST to include currently exempt health, education and fresh food items. Regarding taxation revenue, I referred to a drop in stamp duty revenue from property transactions (referred to as transfer duty in the Budget papers). The taxation revenue data (see chart below) show transfer duty is a rather volatile revenue item, and it is regrettable that the State Government is so reliant on such volatile revenue items as transfer duty and royalties. (Also, they are highly inefficient ways to raise revenue.)
The volatility and unreliability of a substantial fraction of Queensland Government revenue is a major concern given the large spending pressures facing the Government, particularly in the health portfolio, in which expenses are growing at a relatively high rate of around 6% per year. And the situation could be even worse if the Commonwealth Government’s proposed policy on future hospital funding is eventually implemented. In an excellent article analysing the Intergenerational Report (IGR) last week, Peter Martin noted that according to the Government’s proposed policy modelled in the IGR:
Beyond 2017-18 Commonwealth grants to states for hospitals will increase only in line with the population and the consumer price index. But the cost of running hospitals is continuing to climb. Not meeting that cost is unrealistic (unless the states meet it by doing something such as lifting the goods and services tax) but it holds back the projected deficit.
Given all the budgetary risks that the Queensland Government is facing, I would encourage the Queensland Treasury to undertake its own IGR modelling exercise for the State Budget this year, and to release the report with the Budget papers to inform public discussion and debate over policy options.