Queensland Treasurer Andrew Fraser has released the 2009-10 Mid Year Fiscal and Economic Review.

Overview

Economic conditions have improved since the 2009-10 Budget was released in June, leading to modest improvements in the majority of economic and fiscal forecasts. Despite this, further significant improvement will be needed before growth can return to trend. Reflecting ongoing weakness in revenues, Queensland is still forecasting substantial net operating deficits across each year of the forward estimates.

Economic Outlook

Reflecting an improvement in global economic and financial conditions, the outlook for the Queensland economy has strengthened since the Budget. The economy is now forecast to expand by 1% in 2009-10, compared with a 0.25% contraction forecast at Budget time, while growth is forecast to strengthen to 3.5% in 2010-11, above the 2.75% originally anticipated. Nevertheless, along with the modest economic growth in 2008-09, this would still represent a three-year period of below trend growth in Queensland.

Labour market

In line with the improved economic outlook, year-average employment is now forecast to rise marginally in 2009-10, a significant improvement on the forecast fall of 0.75% in the Budget.

The resilience in employment conditions also reflects the fact that much of the reduction in labour demand has been accommodated by a fall in average working hours. The unemployment rate is expected to rise from a year-average rate of 4.4% in 2008-09 to 6.25% in 2009-10, slightly lower than the Budget forecast of 6.5%. However, this implies a further rise in the unemployment rate (currently at 6.1%), which is predicted to peak in mid-2010.

With economic growth expected to strengthen into 2010-11, jobs growth is forecast to reach 2% next financial year, above the 1.25% forecast in the Budget. This would still represent a below average rate of employment growth, in line with below trend economic growth and reflecting some capacity for employers to reverse previous cuts in working hours prior to taking on more staff. As a result, jobs growth is expected to remain marginally below growth in the labour force, causing the unemployment rate to rise slightly in year-average terms to 6.5% in 2010-11, although well below the 7.25% originally anticipated.

Fiscal Outlook

The operating balance expected for 2009-10 is a deficit of $2.351 billion compared to a forecast deficit of $1.954 billion at the time of the 2009-10 Budget. The $397 million decline in the net operating balance since the Budget primarily reflects:

• a $227 million downward revision to royalty estimates, due to the appreciation of the Australian dollar - US dollar exchange rate

• revisions to Commonwealth funding in particular reflecting the Commonwealth's preferred treatment of its contribution to the Gold Coast Rapid Transit project as equity which reduces revenue by $365 million.

• the decision in relation to the Traveston Dam which requires the State to budget for a payment of $265 million to Queensland Water Infrastructure, representing the amount of expenditure on the Dam project considered to be non-recoverable.

These downward revisions have been somewhat offset by modest improvements in taxation and GST revenue as well as actuarial revisions to superannuation.

Beyond 2009-10 there have been improvements in the net operating balance in each year of the forward estimates. Deficits of between $2.5 billion and $3.3 billion are now forecast, compared with deficits of between $3.3 billion and $4.1 billion forecast at the time of the 2009-10 Budget.

Have your say

To have your say on the State Government's Mid Year Fiscal & Economic Review email us at policy@cciq.com.au.

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Contact t: 07 3842 2267 | e: policy@cciq.com.au | w: www.cciq.com.au