Yesterday’s Mid Year Fiscal and Economic Review revealed Queensland Government debt forecasts marginally lower than they were at budget time in June, but total borrowings will still reach nearly $81 billion by mid-2021. As Steven Wardill notes in today’s Courier-Mail:
…the debt to revenue ratio – one of the Government’s key fiscal principles – is now deteriorating after being reined in through raids.
Yes, the critical debt-to-revenue ratios, both the Government’s preferred general government measure and the total (non-financial) public sector measure, which is what the ratings agencies really care about, are still forecast to worsen over the budget forward estimates to 2020-21 (see chart below).
It is the ratio of total borrowings to revenues (including borrowings and earnings by government-owned corporations) that is most relevant and should actually be targeted in the Government’s fiscal principles, rather than the general government measure. Ratings agencies are clever enough to figure out that governments can manipulate their general government borrowing-to-revenue ratio through shifting debt on to GOCs, as our state government has done previously. The Queensland Government needs to show the total borrowing-to-revenue ratio, which is forecast to reach 120 percent by mid-2021, is instead on a path back to around 100 percent or lower, if we are to regain our AAA credit rating.
Finally, Treasurer Trad has made some interesting comments to the Courier-Mail’s Steven Wardill about prospective future revenue write downs—up to $2.5 billion over four years—due to possible changes to the GST revenue distribution methodology and housing and education funding agreements with the Commonwealth. It’s worth picking up today’s Courier-Mail to read Wardill’s exclusive story Trad warns of $2.5bn budget carve up.
If the government were less ideologically committed to public ownership, I would interpret Trad’s comments as laying the groundwork for future asset sales or leases. Let us listen closely to Treasurer Trad’s future comments in this regard, because I wouldn’t be completely surprised if the Government eventually proposes some minor privatisations of what it could label “non-core” assets. The leasing out of Gladstone Port and Townsville Port (plus the rail line to Mt Isa) would be relatively uncontroversial with no regrets, in my view.