Queensland Treasurer Cameron Dick is facing a tough challenge developing the COVID-recession-ravaged state budget, but the Reserve Bank of Australia will make his task a little bit easier with its new round of Quantitative Easing, by which it purchases Australian and state and territory government bonds with newly created money, driving up bond prices and lowering yields/interest rates (see Governor Phil Lowe’s Melbourne Cup day statement).
Along with the cut in the cash rate to 0.1%, the new round of QE will enable the Queensland Government to borrow at lower interest rates and should lead to the state government’s interest payments on its borrowings (an annual cost of around $1.7 billion) increasing less than they otherwise would with the state’s ever-growing debt. We may be lucky and interest payments won’t end up exceeding $2 billion in a few years’ time. Queensland Treasury Corporation is in the best position to forecast that, and I’m keen to see the forecast interest payments in the state budget.
The new round of QE will help the Queensland Government a little in its budget formulation task, but the Government will still run large deficits and general government debt will rise to around $75 billion by 2023-24, and total government debt will rise to around $115 billion, and possibly more. We will find out the Queensland Treasury’s estimates when Treasurer Dick hands down the state budget on 1 December.
Based on the RBA Governor’s statement, it appears the RBA could end up purchasing at least an additional $4 billion of Queensland Government bonds/debt. It’s extraordinary how times have changed. This is the sort of thing then Queensland Treasurer Andrew Fraser and his Treasury would have appreciated back during the 2008-09 financial crisis, when they were desperate for Commonwealth support (a tale I tell in my 2018 book Beautiful One Day, Broke the Next). The Australian Government eventually guaranteed state government borrowings but state governments had to pay a fee to get the guarantee. This time, the economic situation is even more precarious, and the RBA is doing all it can to stimulate the economy, including via its radical new experiment with QE, one beneficiary of which is the Queensland Government.
For more on QE, see my previous posts and podcast episodes: