I was quoted by John McCarthy in an article in today’s Courier-Mail (see image above) regarding the Queensland Government’s fiscal challenges. I’ve previously commented on the big challenge the Government has of sticking to its fiscal strategy announced at the election (see ABC radio interview on the fiscal challenges facing the new Qld Government), and my comments to the Courier-Mail are consistent with previous statements. The Courier-Mail reports:
“I think their fiscal strategy announced at the election is under question,” Mr Tunny said. “I can’t see how they can stick to the targets of paying down debt when royalties are falling and they have to pay for infrastructure.”
What I should have added is that I expect the Queensland Treasury will find creative ways to avoid the appearance of breaching the Government’s stated fiscal strategy. For example, the Government has been clear that the debt figure it will focus on is general government debt, currently estimated at $46 billion, rather than the total government debt of around $80 billion that the previous Government was focussed on. Broadly speaking, general government debt includes the debt attributable to government departments such as health, education, etc, and does not include the debt of government-owned businesses (e.g. Energex, Seqwater, Queensland Rail).
Boldly, the Government could claim to be reducing general government debt (its preferred metric) gradually over time, while blowing out total government debt, by borrowing for new infrastructure projects outside of the general government sector. For instance, the Government could direct some of its existing Government-owned businesses to borrow for new projects, or it could create new Government-owned businesses to borrow money to deliver new projects, and it could do so without increasing debt in the general government sector. The challenge is that it would have to prove that any new Government-owned business would be aiming to earn a commercial rate of return – otherwise it should strictly be in the general government sector. To do so, you would expect it would need to levy user charges (e.g. tolls).
Also, I wouldn’t rule out equity injections into a new Government-owned entity from Government-owned financial bodies such as QIC, for example. Or new, interesting variants of the public-private partnership (PPP) infrastructure model which has earned such a poor reputation with private investors due to multiple failures of the model in recent years.
Finally, I would note that I have great faith in the ability of our Treasury officials to find creative ways of funding new infrastructure off-Budget. Reading the 2015-16 State Budget is sure to be a lot of fun!