As I predicted earlier this month (see John McCarthy’s 13 May InQld article), the Queensland Government will be boosting health spending in the upcoming budget to deal with the hospitals crisis, and to a large extent it’s able to do this because of booming coal royalties. Nine News last night reported Queensland Premier promises a ‘record health budget’ amid crisis. The Government will also be providing a $175 electricity bill rebate, which doesn’t make sense from an economic perspective, but could be justified as an equity measure (and hence, ideally, it should be targeted at those most in need).
We’re talking billions of extra dollars to the state government this financial year and next due to higher coal royalties. It’s difficult to quantify precisely because of the uncertainty around how long the crazily high coal prices caused by the Ukraine war will last (see below, noting the ICE Newcastle Coal price is for thermal/steam coal).
The state budget will also benefit from an economy that is in better shape than anyone would have predicted late last year when the state Treasury prepared the mid-year budget update. In the budget update, Queensland Treasury forecast the state unemployment rate would average 5.25% over 2021-22 and 5% over 2022-23. Currently the Queensland unemployment rate is 4.5% and it’s averaged 4.7% so far this financial year (see chart below). This will mean hundreds of millions of dollars of extra payroll tax revenue. Incidentally, I should note the jump in the state unemployment rate from 4% to 4.5% in April is probably statistical noise rather than signal.
Additionally, there’s the likelihood that the Treasury substantially under-estimated stamp duty revenue at the time it prepared the mid-year update last year. We know the Queensland property market is being super-charged by interstate buyers who’ve finally realised all the advantages Queensland has to offer – even if we do seem to have recurring crises in the delivery of public services by successive state governments (one of the themes of my 2018 book Beautiful One Day, Broke the Next). Net interstate migration is currently running at around 40k per annum (see chart below).
Finally, we saw signs of state business capital spending picking up in the latest March quarter data released by the ABS yesterday, although business capital spending is still nowhere near what it was during that incredible boom in the first half of last decade when the $70 billion Curtis Island LNG terminals were under construction (see chart below). State business capital spending was up 1.7% in March quarter, while nationally it had a slight fall of 0.3% (see the ABS report).
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