What I’m expecting from the 2018-19 Qld state budget

This coming Tuesday, 12 June, Queensland Deputy Premier-Treasurer Jackie Trad will deliver her first state budget. It is her best chance to establish her economic credibility. Trad is fortunate the state economy is performing reasonably well, albeit not strongly across all sectors and still too reliant on the public sector, as suggested by the March quarter national accounts data released by the ABS last Wednesday (see chart below). Another favourable circumstance for Trad is that coal prices remain high, with coking coal at around $US200 per tonne, boosting royalty revenues. As my colleague Nick Behrens commented in his Qld state budget preview, the revenue gods are smiling for Queensland.

On the other hand, Trad has to deal with an ever growing public service and insatiable demands for public expenditures from her ministerial colleagues, industry peak bodies, and community groups. Alas, Trad appears to have given in to some of these demands. The Government has already announced a $45 billion infrastructure budget, and the Courier-Mail’s Steven Wardill reports today that total state debt is now projected to reach $83 billion in 2021-22 (Infrastructure spree will see debt explode to $83 billion in four years). This is no doubt an example of a government getting the bad news out early, so the budget day reporting focuses on the positive surprises. Incidentally, regular readers will know I am very concerned about the level of state debt and the government’s interest bill, and I was quoted on this issue by Steven Wardill in one of his previous articles this week:

Car registration cost could be cut for same price of interest on Queensland debt

Despite today’s bad news regarding state debt, I remain hopeful there will be some positives in the upcoming budget. The 2018-19 state budget undoubtedly offers the Deputy Premier-Treasurer her best chance to check the ever expanding public service and to impose restraint on operating expenses, both to fund additional infrastructure and to demonstrate a path back to a AAA credit rating over the longer-term. So here are a few things I’m expecting (or rather hoping for) from the 2018-19 state budget.

  1. Public service efficiency measures. I expect Trad to impose efficiency measures such as a freeze on senior appointments or efficiency dividends (e.g. a 1% reduction per annum in operating budgets) on many public service agencies, in recognition of the fact public service numbers have over shot their optimal levels. I have previously commented on the excessive growth in senior public service positions (My comments on excessive growth in senior public service jobs in today’s Courier-Mail).
  2. A path back to the AAA credit rating. At the very least, I would like the budget to show a 5-10 year projection of the state’s debt-to-revenue ratio back to around 100% (and preferably to a much lower level), at which time Queensland would have a good case for regaining its AAA credit rating. To achieve this will require ongoing fiscal restraint on the part of the government, obviously, and an efficiency dividend may be one way of demonstrating this. Last December, the Treasury was projecting the critical debt-to-revenue metric was on its way to around 120% (see my post Critical Qld Gov’t debt metric still projected to worsen). With total state debt now projected to continue growing, the debt-to-revenue ratio will no doubt remain on a path to 120% or more.
  3. Conservative economic and fiscal forecasts. I will be checking the Treasury has not veered too far from the relatively conservative economic forecasts it made last December at the time of the Mid Year Fiscal and Economic Review (e.g. 3% GSP growth and 2.5% wages growth in 2018-19). It’s best to be conservative, lest governments start spending money they will never realistically ever have.

I am very much looking forward to the release of the state budget on Tuesday, and I am lucky enough to have been invited to the lunchtime stakeholder briefing at the Parliamentary Annexe, which occurs prior to the Deputy Premier-Treasurer handing down the budget in the Parliament. The 2018-19 state budget is a great test of the Deputy Premier-Treasurer’s economic credibility, and I will be paying very close attention to her justification, reportedly based on Queensland’s growing population, for letting state debt continue to accumulate, on its way to $83 billion in 2021-22.

sfd_Mar18

Advertisements
This entry was posted in Budget, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

2 Responses to What I’m expecting from the 2018-19 Qld state budget

  1. Jim says:

    Gene

    Great post as always.

    “The revenue gods are smiling for Queensland”…. at least temporarily. So the State responds by commiting funds to a bunch of infrastructure projects (stadiums, theaters, dams and transport) that will create long-term fiscal discomfort.

    Is the State’s fiscal strategy the equivalent of farting when you get in a lift on the way to the 40th floor? It fells great for a couple of seconds, but then……

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s