Queensland Economic Advocacy Solutions

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Does Queensland have a debt problem?

At the end of 2018 when the Mid-Year Fiscal and Economic Review (MYFER) was released there was considerable debate over whether Queensland has a debt problem.  So to kick off 2019 I thought QEAS might have a look at this important issue. It is an important issue because if we leave debt to spiral out of control we are essentially leaving a liability for our children and future generations to bear.

In looking at the headline dollar values they appear to be quite concerning.  Both ‘General Government’ and ‘Public Sector’ (both general government and government owned corporations) debt peaked in 2014-15 then stabilised across subsequent years but have again commenced rising from 2018-19 and across the forward estimates peaking at $83.5 billion in 2021-22 for Queensland’s public sector. That’s an impressive number!

However as most of us will know, either in business or in our private lives, when we borrow money one of the first questions a lending institution will ask us is what is our income? That is, they want to know what capacity we have to pay off the debt.  The quantum of debt in many respects is irrelevant it is all about what capacity we have to pay off the debt. Certainly the credit rating agency’s such as Moody’s and Standard and Poors pay particular attention to the 'debt to revenue ratio' as it is a key measure of the sustainability of a jurisdiction’s debt levels.

In this context QEAS has looked at Queensland’s debt to revenue ratios and they are very enlightening. 

Based on this metric Queensland’s debt more realistically hit its peak in 2012-13 and progressively came down across the period to 2017-18 but has again started to rise from 2018-19. However, both Queensland’s general government (56.3) and public sector (107.6) debt to revenue ratios in 2018-19 remain well under the peak of 90.7 and 140.5 respectively. By 2021-21 the general government ratio will be 69.0 and the public sector ratio will be 118.9 but again well under the peak in 2012-13.

In responding to concerns about Queensland’s debt levels the State Treasurer, The Hon Jackie Trad, said Queensland is no different to other States asuch as Victoria and New South Wales who are actively increasing their debt levels to fund infrastructure.

QEAS fact checked this in the context of the debt to revenue ratio and here is where some concern lies. Indeed Queensland is moving in unison with both NSW and Victoria in taking on more debt, however, when contrasting the debt to revenue ratios we can see contextually how Queensland is more exposed.  In respect to the General Government debt to revenue ratio, Queensland’s (56.3) is well above NSW (42.7) and somewhat above Victoria’s (53.2). 

However the real problem lies with our Public Sector debt to revenue ratio that credit rating agencies pay most attention to.  Queensland’s ratio (107.6) is an eye watering 37 to 38 percentage points above that of NSW (70.0) and Victoria (69.7). This is reflective of the shifting of debt to GOC’s that occurred in the 2015-16 State Budget and our GOC’s already owing significantly more money. This is still a problem for the State Government as they own the GOCs and are ultimately responsible for that debt as well as their own.

At present Queensland’s credit ratings are Aa1 (Moody’s) and AA+ (Standard and Poors) and contrast to Aaa and AAA ratings for both NSW and Victoria. In short, if Queensland is serious about getting our ‘triple A’ credit rating back we would need a public sector debt to revenue ratio coming back to below 90%.  That is the Queensland Government and its GOCs would need to pay down approximately $11 billion worth of debt.  In the current context of booming mining royalties already spent I think a more realistic target for the Queensland Government would be to keep the public sector debt to revenue ratio at 2017-18 levels across the budget cycle.

To summarise four clear points should be noted:

  • Consideration should be given to the 'debt to revenue ratio' rather than the headline dollar value of debt.
  • Queensland’s debt to revenue ratio for both the State Government and Public Sector is again on the rise following a moderation over recent years.
  • Queensland is carrying a significantly higher amount of debt compared to both New South Wales and Victoria who have ‘Triple A’ credit ratings. 
  • Our State's debt burden is considerably exacerbated by the high amount of borrowings by our Government Owned Corporations.

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