Today’s Courier-Mail features an exclusive from State Political Reporter Steven Wardill on “Pitt’s Debt Trick.” It suggests the Government intends to transfer $4.1 billion of debt from the General Government sector (i.e. the government agencies such as health and education) to government-owned corporations (GOCs), particularly the energy companies. This will allow the Government to reduce the interest bill in the General Government sector by a reported $600 million over the next four years, allowing it to report a better budget balance, even though it would simply transfer the interest bill with the debt to the energy companies. The debt and associated interest bill haven’t disappeared, and the Government’s real financial position hasn’t improved.
While the Government can argue it is General Government debt that really matters, because GOC debt is covered by the earnings of the companies, this does not mean that any debt originally incurred by the General Government sector and transferred to GOCs doesn’t matter. The debt in question was originally incurred to help cover budget deficits in the General Government sector, and has not at all provided any capital to the GOCs that could generate a rate of return. So the Government has increased the debt of GOCs and their interest bills without actually giving them any additional capital that might earn a return to pay the interest bills.
The Government has two genuine ways available to improve its financial position, assuming no tax increases:
- carefully managing expenditures to improve its budget balance; and
- improving the efficiency of GOCs to cut costs so they can pay the Government higher dividends.
Accounting tricks such as the one reported on the front page of the Courier-Mail are not genuine. They do not improve the Government’s real financial position. Suspicious people may consider it “smoke and mirrors”, and, at the moment, it is hard to think that it isn’t.
It may well be the case that the energy companies have lazy balance sheets with relatively low debt and there is scope to increase their gearing. But that should be a business decision. It shouldn’t be driven by a political need to appear compliant with a possibly unachievable fiscal strategy given the write-down in royalties.
The Government will find it very hard to convince the public that this is sensible policy and that it has a real plan to improve the State’s finances. Queensland needs genuine budget repair, not accounting tricks.