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QEAS Previews the Queensland Government’s 2020-21 State Budget

Earlier this year the 2020-21 Queensland Budget was cancelled due to the extremely difficult task of framing a budget with the uncertainty of COVID-19’s impact on State revenues. The Queensland Treasurer, the Hon Cameron Dick, will be releasing his first State Budget on Tuesday 1st December 2020.

This Budget will confirm actual results for 2019-20 financial year which is yesterday’s news having finished five months ago.  Most interest will be on where Queensland stand’s at the midway point of the 2020-21 financial year and across the next several years.

It is difficult to be overly critical of any Government in Australia at present due to the extraordinary circumstances related to COVID-19. However this is not a reason to not hold them to account.  And holding them to account in this environment is a tricky business.

With an unprecedented context, historical comparisons are not really useful.  What may prove to be the best accountability is contrasting the deterioration in Queensland’s financial position against our two largest rivals - NSW and Victoria who have both had recent budgets.

Below are key criteria that can be used to objectively assess how good the State Budget is for Queenslanders:

1.     What is the revised deficit for 2020-21?   

As part of the Queensland Government’s COVID-19 Fiscal and Economic Review released prior to the State Election on the 7 September the deficit for 2020-21 was projected at $8.136 billion the largest in Queensland’s history. This is largely driven by dramatic revenue reductions arising from COVID-19 and the Government’s response to the pandemic.  NSW’s deficit is predicted to be $16 billion and Victoria’s $23.3 billion. As NSW and Victoria both have much bigger budgets the best means of an apple with apples comparison is to benchmark metrics as a percentage of GSP.  NSW's deficit in 2020-21 as a percentage of GSP for example will be 2.5 per cent and Queensland’s will be in the order of approximately 2.3 per cent.

2.    What are the deficits for 2021-22 and across the forward estimates?  

It will be fascinating to see whether the Queensland Government will endeavour to whittle away at the operating deficit, trying to bring it back to surplus over the forward estimates.  This is extremely unlikely as the Queensland Government has rightly indicated now is not a time for austerity.  Victoria is not endeavouring to achieve this across their forward estimates but NSW by 2023-24 is forecasting a small $460 million deficit with hope for a surplus the following year.

3.     What is the revised level of taxation and other receipts for 2020-21?  

The domestic and global economic downturn is impacting substantially on the State’s revenue sources, as is the case in other jurisdictions. Total revenue has been revised downward across the forward estimates, with key State revenue streams (taxation, royalties and land rents, and GST) substantially lower. The Queensland Government’s COVID-19 Fiscal and Economic Review in September predicted the 2020-21, revenue to be $56.239 billion, a decrease of $5.476 billion (or 8.9%) compared with the 2019-20 MYFER forecast. 

4.     How much is Government expenditure growing by in 2020-21 and in future years and have they kept a lid on growth?  

Expenditure growth has largely proven to be the Queensland Government’s achilles heel with a significant increase in spending since the Palaszczuk came into office in 2015.  However growth occurring in 2020-21 is being justified to support the COVID-19 economic crisis. In response to the COVID-19 pandemic the Government has provided stimulus and longer-term economic recovery packages increasing General Government expenses over both 2019-20 and 2020-21.  Partly offsetting these increases are savings from public service pay rise deferrals. To support Queensland’s COVID-19 economic recovery, the Government is implementing a savings and debt plan with a target of $3 billion over four years to 2023-24. 

5.     How much is government debt rising in 2020-21 and over the forward estimates of the Budget? 

The COVID-19 Fiscal and Economic Review confirmed Queensland’s General Government Sector borrowing was estimated to be $18.376 billion more by 30 June 2021 than projected in the 2019-20 MYFER due to the COVID-19 hit on the budget. Estimates in September 2020 had Queensland’s public sector borrowing punching through the $100 billion ceiling with an estimated $102 billion in borrowings in 2020-21.  Again contrasting Queensland’s borrowings as a percentage of GSP against NSW and Victoria will be enlightening.  NSW public sector borrowings in 2020-21 are estimated at 20.4 per cent.  

6.     What are the economic and revenue forecasts for the next four financial years and are they realistic? 

COVID-19 has severely impacted economic activity across the globe and in Australia with Queensland’s key major trading partners among many countries that have been significantly impacted economically by the pandemic, with flow-on effects on the demand for Queensland’s resources exports.  Reflecting these impacts, Queensland gross state product (GSP) in September was forecast to fall in 2019-20 by 0.25% and will recommence recovering in 2020-21, rising by 0.25%.  We will need to see whether these forecasts change in any way.  NSW is predicting a 0.75 per cent reduction in their GSP in 2020-21 and Victoria a 4.0 per cent reduction.  

7.     What infrastructure projects will be announced?

As part of Queensland’s Economic Recovery Plan, the Government has committed to maintaining the current State infrastructure investment program at $51.8 billion over the four years 2019-20 to 2022-23. This remains the largest 4-year capital spend in nearly a decade. NSW’s capital expenditure in 2020-21 will track at 3.6 per cent of GSP but will fall across the forward estimates to 2.6 per cent.  I will be very interested to see how Queensland’s infrastructure spend is performing in this vitally important area.

8.     What economic and job growth initiatives will be announced? 

Given the close proximity of this budget with the State Election the economic and job growth initiatives have largely already been announced and should just be the confirmation or rearticulation of the announcements made in the weeks prior to the 31 October State Election.  

In summary, the Queensland Government prior to the State Election consistently claimed the State entered the COVID-19 crisis in a stronger position than other States. It is widely recognised that this was not the case (with Queensland lagging Victoria and New South Wales in recent years) however we will almost certainly emerge from the COVID-19 economic crisis in a stronger position.  This will certainly be the case across economic metrics and I think the gap will narrow in Queensland’s favour on financial metrics. 

In short, I predict Tuesday will confirm the following:

  • A stronger growth outlook for Queensland compared with other key States and Nationally;
  • The highest budget deficit on record and total public sector debt rapidly escalating breaking through the $100 billion celling but not dissimilar to that occurring in other States; 
  • No additional revenue measures to address an increasing budget deficit which I believe is prudent;
  • Infrastructure spend will increase and as a percentage of total economic activity will rise to 3.1 per cent in 2020-21 – the highest percentage since 20212-13; and
  • Priorities rightly being placed on health management and protecting the economy.

Key charts from the COVID-19 Fiscal and Economic Update delivered in September 2020 are provided below.  QEAS will be releasing a full budget assessment following the Treasurer’s delivery of the 2020-21 Queensland Budget on Tuesday afternoon.

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