There is growing pressure for a wide-ranging inquiry into the Queensland Government’s integrity, and, in my view, any such inquiry should explore the fake privatisation of the Titles Registry in mid-2021. This gave the Government political cover to take on billions in additional debt, while breaching fundamental principles of government budget reporting. The Titles Registry trickery raises big questions about the Government’s public financial management and whether Queensland Treasury has been politicised. Is the state Treasury offering the frank and fearless advice it should?
What impact did it have on the state government budget and balance sheet?
Let’s have a closer look at what happened with the Titles Registry. Recall the Titles Registry, previously legally part of the Department of Resources, was legally changed to a Pty Ltd company, owned by multiple investment funds of the Queensland Government, just prior to 30 June 2021. In the lead up to the legal manoeuvres, the Government had obtained a valuation for the Titles Registry from government-owned funds manager QIC of around $8 billion.
The Queensland Government is now claiming the Titles Registry is a private company, although it ultimately owns it, and it is claiming the Titles Registry is no longer in the general government sector, for which budget aggregates are reported. The surplus of the Titles Registry, which is hundreds of millions of dollars annually (given annual revenue is around $350 million and operational costs are likely only in the tens of millions) is earmarked to support the purposes of the Queensland Government investment funds which own it, such as the Debt Retirement, Housing Investment, Path to Treaty, and Carbon Reduction Funds. Of course, money is fungible, and the Titles Registry earnings are still supporting the Queensland Budget, because they alleviate the need for the money spent on these purposes coming out of Consolidated Revenue.
The beauty of the Titles Registry trickery, from the Government’s perspective, is the fake improvement it allows the Government to claim on its balance sheet. The Titles Registry trickery allows the Government to pretend net debt and it appears gross debt, too, as discussed below, are lower than otherwise, giving the Government additional “fiscal space” so to speak. It is being used by the state government to pretend it has uncovered a hitherto untapped source of financing, providing new money for the government to spend without going further into debt, which is wrong, by the way.
In 2021-22 Budget Paper 2 (p. 69), the Government notes:
General Government Sector net debt at 30 June 2021 is forecast to be nearly $10 billion lower than anticipated at the time of the 2020–21 Queensland Budget. This is primarily due to faster than anticipated improvements in the domestic and national economies leading to a softer impact on gross borrowing requirements, and the contributed valuation for the Titles Registry, being greater than anticipated.
The Titles Registry had already been factored into the calculation of net debt in the 2020-21 Budget (published in December 2020), but only at a value of around $4 billion, rather than the nearly $8 billion the Government was now claiming in the 2021-22 Budget (published in June 2021).
Before proceeding, let’s consider exactly what net debt is supposed to represent. Net debt is essentially gross debt less liquid financial assets. This is how Investopedia defines it:
Net debt is a liquidity metric used to determine how well a company can pay all of its debts if they were due immediately. Net debt shows much debt a company has on its balance sheet compared to its liquid assets.
For the Queensland Government the major liquid asset is what is labelled “Investments, loans and placements”, and this is the major item which is subtracted from gross debt to determine net debt. This is largely Let’s now have a look at how the net debt estimates for 2020-21 have changed as the Government developed its Titles Registry deception over the last couple of years in Table 1. Incidentally, the Titles Registry had to become part of the Government’s Queensland Future Fund announced by previous Treasurer Jackie Trad in late 2019 (in the Mid Year Fiscal and Economic Review) because that was intended to be funded with $5 billion of surplus funds set aside to meet the defined benefit superannuation liability. But that money turned out to be much less than expected. Indeed, in mid-2020, they thought they had only ended up with $1 billion of surplus funds for the $5 billion Future Fund. So to cover themselves politically, the Government had to get creative, and that’s when the fiendishly clever fake privatisation of the Titles Registry was thought up and revealed. It was first factored into official budget figures in the September 2020 COVID-19 Fiscal and Economic Review).
Table 1. Evolution of Queensland Government 2020-21 net debt estimate over budget statements, $ million
|2020-21 (2019-20 Budget projection)||2020-21 (2019-20 MYFER projection)||2020-21 (C19FER projection)||2020-21 Budget||2020-21 Est. Actual|
|Borrowing with QTC||35,218||34,772||53,148||53,501||47,102|
|Leases & other similar arrangements||7,071||7,845||7,557||7,565||7,779|
|Securities and derivatives||122||121||198||198||198|
|Gross debt (for net debt calculation)||43,852||44,193||62,430||62,770||56,584|
|Cash and deposits||489||438||1,019||1,005||951|
|Investment, loans and placements||30,429||30,523||34,407||34,851||38,466|
|Liquid assets (for net debt calculation)||31,547||31,581||36,841||37,271||40,774|
|Net debt ($ million)||12,305||12,612||25,589||25,499||15,810|
Source: Queensland Government Budget papers. Note tiny differences in the net debt figures compared with the reported figures is due to rounding. MYFER stands for Mid Year Fiscal and Economic Review, C19FER stands for COVID-19 Fiscal and Economic Review, and Est. is short for estimated.
From Table 1, we can see how incorporating the Titles Registry has obviously been a major part of investments, loans, and placements ending up nearly $8 billion higher at the end of 30 June 2021 than originally projected at the end of 2019 (see the value in the final column of Table 1 compared with the value in column for the 2019-20 MYFER projection). The $8 billion or so improvement cannot solely be due to the Titles Registry, and must reflect some other asset revaluations, too, for the following reason.
The Titles Registry has been used as a vehicle by the Government for borrowing an additional $2.1 billion “off budget” so to speak, in that the amount does not show up in the borrowing line for the general government, although it would reduce the value of the Titles Registry which is carrying the debt (i.e. it would partly offset the $8 billion valuation). Here is how the Queensland Audit Office in its Establishing the Queensland Future Fund report (p. 7) published in December 2021 described the manoeuvre:
On the same day the Queensland Titles Registry operations transferred to the Debt Retirement Fund, $2.1 billion was borrowed. This occurred in a company within the Queensland Titles Registry structure to provide liquidity to the fund and support the state’s credit rating.
This was a very clever, though dubious, way to attempt to conceal an additional $2.1 billion of government borrowings. Note that the Debt Retirement Fund is part of the Queensland Future Fund. It definitely appears that the state government has set this up to both facilitate its creative accounting and also to confuse the public.
What’s wrong with including the Titles Registry in investments, loans and placements?
There are at least two problems with the inclusion of the Titles Registry in investments, loans and placements.
First, as discussed in my previous post, the Titles Registry valuation dubiously includes the capitalised value of a general government taxation power which could not possibly be sold (at least in the modern world).
Second, as also discussed in my previous post, the Titles Registry does not qualify as a liquid asset, given it is not something the Government would readily sell its shares in to others. It cannot be used to pretend the Government has a lower net debt than otherwise. Incidentally, the fact equity in Government-owned corporations (GOCs) such as Energy Queensland is not liquid is the reason the $22 billion the Queensland Government has of equity in “Investments in other public sector entities” is not figured in the net debt calculation. Why would equity in GOCs be excluded but the equity in the Titles Registry be included in the Government’s estimation of its net debt? It does not make any sense.
In conclusion, the Titles Registry trickery should be investigated as part of any inquiry into the Queensland Government’s integrity.
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