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Queensland State Budget 2018-19 Preview – The Smiling Gods of Revenue

As the foremost instrument of both fiscal and economic management all eyes will be on the State Budget next week.

On Tuesday 12th June the Hon Jackie Trad, Treasurer, will be delivering her first State Budget and will no doubt be using this as an opportunity to demonstrate that Queensland can count on her as custodian of the State's finances.  Queensland's budgetary position should in theory be in pretty good shape delivering a higher than anticipated surplus for 2017-18 and potentially a faster pay down in debt across the forward estimates. Both can and should be delivered courtesy of higher than forecast:

  • Coking coal prices and export volumes;
  • Employment growth and the beneficial impact this has had on payroll tax receipts (albeit partly tempered by low wages growth);
  • Population growth delivering boosted tax revenue in other areas namely duties; and also
  • Four new ‘Robin Hood’ taxes and a waste levy that will kick off in 2018-19.  

The below are the criteria that can be used to objectively assess how good the State Budget is for Queenslanders on Tuesday 12 June 2018:

  1. What is the revised surplus for 2017-18?   Is it in line with the December MYFER estimate of $485 million for 2017-18. It is almost certainly going to be higher than that thanks to the good revenue fortune as referenced above. 
  2. What are the surpluses for 2018-19 and across the forward estimates?  I do not think we will see these rise significantly as excess monies will be channelled either into higher infrastructure spend, recurrent expenditure and/or earlier pay down of debt. The only threats I can immediately see to revenue across the forward estimates are the spat over Aurizon and the impact it may have on coal royalties (this is overstated: worth $213 million and in any case is more than made up by coal prices and volumes at present) and the current review of GST carve-up arrangements which is considerably more serious and could be worth between $700 million and $1.4 billion for 2019-20 and beyond.
  3. What is the revised level of taxation and other receipts for 2017-18 and 2018-19?  Expect windfalls and large ones at that.  For example between the June 2017 State Budget last year and the MYFER in December royalty revenue was revised upwards by $806 million across the period 2017-18 to 2020-21. It will be interesting to see how much additional revenue is received in other areas (eg payroll tax and land tax). We will also start to see commencement of the State Government’s new ‘robin hood’ taxes including the 7% transfer duty surcharge applied to foreign buyers of Queensland property (raising $99m over 3 years) and a new land tax category for 850 large property holdings greater than $10m (raising $227m over 3 years).  Furthermore the new ‘waste levy’ details and anticipated revenue will be included in the State Budget and is anticipated to kick-off 1 January. Tax revenue in the MYFER was forecast to increase by 3.0% in 2017-18 and 6.7% in 2018-19.
  4. How much is Government expenditure growing by in 2017-18 and 2018-19 and have they kept a lid on growth?  A one per cent reprioritisation measure in the public service saving $1 billion was announced during the State Election.  Expenditure in the MYFER was forecast to grow by 4.9% in 2017-18 and by 0.2% in 2018-19.  Employee related expenses are forecast to grow by 6.6% in 2017-18 and by 2.9% in 2018-19.  Public service numbers and forecasted headcount are also contained in the State Budget and it will be prudent to check these against population growth of 1.5% in 2017-18 and 1.75% in 2018-19.  I would not be surprised to see the sixth fiscal principle which caps public service growth to population growth jettisoned as is has repeatedly not been met.
  5. What is the budget repair across the forward estimates?  As part of the election, Queensland Labor announced a total net budget repair of $261 million over the forward estimates.  Election commitments totalled $2.8 billion and total budget repair measures of $3.0 billion in recurrent expenditure savings, tax increases and capital reprioritisation measures were announced.  It will be time to cross reference these. Generally speaking there is risk associated with the 'repair as what we spend is guaranteed but what we earn is not.
  6. Is government debt rising or falling in 2018-19 and over the forward estimates of the Budget? For example in the MYFER public sector borrowings in 2017-18 were anticipated to be $71.222 billion  and by 2020-21 debt will have increased to $80.843 billion.  I am expecting to see some insight into how the Treasurer is going to tackle the issue of ‘Debt’ and whether she has resolve to get our triple A credit rating back some time soon.
  7. What are the economic and revenue forecasts for the next four financial years and are they realistic? In the MYFER Queensland's economy was forecast to grow by 2.75% in 2017-18, employment by 2.25% and an unemployment rate at 6.0%.  For 2018-19 GSP is forecast to grow by 3%, employment by 1.5% and an unemployment rate of 6%.  Queensland Labor will use this State Budget as an opportunity to press home their economic credentials but it comes at a time when the trend unemployment rate is now starting to rise again.
  8. What infrastructure projects will be announced? We have already seen widespread announcements to boost infrastructure spend to $45 billion over the next four years from 2018-19.  Infrastructure spend for 2017-18 was estimated at just $7.9 billion.  Recent announcements indicate this will increase to $11.5 billion in 2018-19, $11.6 billion in 2019-20, $11.3 billion in 2020-21 and $10.6 billion in 2021-22.  What are the projects that will be committed to?
  9. What economic and job growth initiatives will be announced?  It is almost certain we will not see any new announcements but rather the rearticulation of the initiatives announced over the course of the State election campaign.  However the unexpected recent peak in Queensland’s employment and an increase in the unemployment rate may serve as impetus to reinforce measures in this area.
  10. Are there any items from left field? It’s a safe bet we will not see any asset sales on the agenda but are there any other creative accounting practices that were readily apparent under the previous Treasurer’s watch? I don’t see Jackie Trad needing to go down this dubious pathway.

The ‘inflows’ of the State Budget for 2017-18 and 2018-19 will not get much better than this and with the 'Gods of revenue' smiling upon her at present the new Treasurer will be hoping to put her best foot forward in demonstrating capable and competent fiscal and economic leadership. 

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