Merger savings good if they occur, but debt shuffle dubious

I am very flattered the Courier-Mail has a story about me this morning with the title on its website of The man who could clear Qld’s deficit:

THE forecast deficit of $1.5 billion could be overcome by courageous decisions made to cut funds propping up industry, according to former federal Treasury economist Gene Tunny.

Mr Tunny pointed to the Queensland Competition Authority (QCA), which found there were 112 instances where $17 billion in tax concessions had been given.

It also found there was $25.3 billion in assistance from 2013 to 2018, including $5.6 billion in budget outlays and $1.3 billion in underpriced assets and services.

Alas, the Queensland Government does not appear to have looked to the QCA report on industry assistance for savings. Instead, in its Mid-Year Fiscal and Economic Review to be released today, it appears to be relying on savings from an Energex-Ergon merger ($680 million over the rest of the decade, which seems very optimistic) and the same old accounting trick it used in the Budget.

That is, the Government is increasing debt in government-owned corporations and transferring the funds to the general government sector (via special dividend payments) so it can pay down general government debt (see Brisbane Times coverage). Obviously, this does not reduce total government debt. The debt shuffle is an illusion, a sleight of hand, and no substitute for true budget repair, which can only come from reducing the gap between revenues and expenditures, preferably by cutting expenditures. My previous comments on this blog on the Government’s dubious accounting trick include:

Qld Government opts for accounting tricks rather than true budget repair

Accounting trick wouldn’t improve Qld Government’s real financial position

I was quoted on this issue in the Courier-Mail earlier this year, too:

Today’s problems in Queensland bigger tomorrow after Budget, say economists

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10 Responses to Merger savings good if they occur, but debt shuffle dubious

  1. KT says:

    well done Gene! – I agree with your points

  2. David Loosemore says:

    Page 2 too!

    Sent from my iPad

  3. Glen says:

    All very good points Gene, but unfortunately most will never be implemented, any govt that looked at introducing these changes would get to watch the outcome from the opposition benches, that’s the political reality.

  4. Jim says:

    Clearly to be a successful economist in Treasury your key skill requirement is an ability to perform fiscal slight of hand…….

    This might be a great short-term tactic to cover an underlying fundamental fiscal problem, but is a really poor strategy in the long-term.

    Gene. I wonder if the GOCs pay a higher interest rate on their debt than the general government (shouldn’t they if competitive neutrality is actually being adhered to)? If so, the fiscal slight of hand also comes with an actual immediate financial cost, not just a long term economic cost.

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