Queensland Economic Advocacy Solutions

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QEAS preview of the 2019-20 Queensland State Budget

As the foremost instrument of both fiscal and economic management all eyes will be on the State Budget next week. On Tuesday 11th June the Hon Jackie Trad, Treasurer, will be delivering her second State Budget.  The below are key criteria that can be used to objectively assess how good the State Budget is for Queenslanders:

  1. What is the revised surplus for 2018-19?   Is it in line with the December MYFER estimate of $524 million for 2018-19? This is really going to come down to whether the costs of this year’s Northern Queensland floods exceed what will once again be increasing coal royalties.  
  2. What are the surpluses for 2019-20 and across the forward estimates?  Forecast at the MYFER, to be a modest $193 million in 2019-20 and $145 million in 2020-21.  In general I believe there to be a trend of reduction in the surplus sizes as a consequence of an absence of Cross River Rail funding from Canberra but also the bolted on additional expense of public service numbers.   The change in GST carve up receipts is in theory neutral to Queensland.  Any upside will almost certainly be channelled into cost of living sweeteners and other recurrent expenditure.
  3. What is the revised level of taxation and other receipts for 2018-19 and 2019-20?  At the MYFER revenue and tax growth were to be stronger in 2018-19. The revenue windfall in 2018-19 was to be $1.264 billion thanks to coal royalties revised up by $1.8 billion over the next 3 years.  In looking to 2019-20 it is a question of whether coal royalties will continue to lay the golden egg for Queensland.  However there are other favourable trends such as payroll tax (a tax on giving someone a job) and the added State Government’s ‘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).  Queensland will also have the new waste levy commencing 1 July anticipated to deliver $1.3 billion over coming years.  The downside will be reductions in land tax and duties thanks to a cooling property market. Tax revenue in the MYFER was forecast to increase by 7.2% in 2018-19 and 6.5% in 2019-20.
  4. How much is Government expenditure growing by in 2018-19 and 2019-20 and have they kept a lid on growth?  Expenditure in the MYFER was forecast to grow by 3.8% in 2018-19 and by 1.6% in 2019-20.  This was quite a blow out from the original State Budget where expenditure in 2018-19 was only meant to grow by 1.5%.  This is courtesy of employee related expenses forecast to grow by a whopping 5.8% in 2018-19 and by 3.6% in 2019-20. This is where the State Budget is very exposed. It is difficult to turn off the expenditure tap once on and I can’t see it being done easily. Public service numbers and forecasted headcount are contained in the State Budget and we will need to check these against population growth of 1.75% in 2018-19 and 2019-20. 
  5. What is the budget repair across the forward estimates?  As part of the election, Queensland Labor announced only a modest 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. 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 2019-20 and over the forward estimates of the Budget? For example in the MYFER public sector borrowings in 2018-19 were anticipated to be $71.6 billion and by 2021-22 debt will have increased to $83.5 billion.  There is no question debt will be rising it is just a question of whether it will rise faster than committed to in 2018-19 State Budget and at the MYFER.  My pick is we will be taking on more and this was confirmed yesterday by the Treasurer.
  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 3% in 2018-19, employment by 1.5% and an unemployment rate at 6.0%.  For 2019-20 GSP is forecast to grow by 2.75%, employment by 1.75% and an unemployment rate of 6%.  Economic growth is one of the largest influences on revenue receipts outside of coal royalties where global demand and commodity prices influence royalty receipts.  Each of these will have assumptions to cross reference against reality.
  8. What infrastructure projects will be announced? According to MYFER, infrastructure spend in 2018-19 is forecast to track at 2.9% of GSP.  However with cross river rail (CRR) now having a shortfall in funding I initially anticipated other infrastructure projects to suffer to sure up the State Government’s flagship CRR.  This will not be the case with the Treasurer confirming they will take on more debt to keep their committed to infrastructure projects underway.  Infrastructure spend as a percentage of GSP is forecast to fall to 2.7% in 2020-21 and 2.5% in 2021-22.  I believe it will go even lower.  Hence the resource sector has been asked to cough up an extra $70 million for a regional infrastructure fund (temporarily on hold subject to a potential Crime and Corruption Commission investigation with the Treasurer accused of blackmailing the resources sector by the Opposition) .
  9. What economic and job growth initiatives will be announced?  It is hard to see any new announcements in the context of a State Budget under strain but rather the rearticulation of the initiatives announced over the course of the previous few years.  
  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 things to grab our attention.

The framing of this budget is dramatically different to recent years.  The ‘Gods of revenue’ are no longer smiling on Queensland.  The Sunshine State is switching from a 2018-19 budget with revenue receipts cascading in to a 2019-20 budget under strain from only modest revenue growth but with expenditure continuing to grow.

Under this scenario it is hard to see impressive surpluses and huge infrastructure announcements.  My pick is this will be a more austere State Budget with some humble announcements and focus on addressing frontline service delivery issues and assisting Queenslanders in need.  This will all be in the context of the State taking on more debt.

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