Mid-Year Financial Updates Review
Both the Federal and Queensland governments have released their respective mid-year budget updates, providing updated details of the fiscal outcomes for FY2017 and revised budget projections for the outlook period to FY2021.
Assisted by commodity prices beating the assumptions presented in their respective budgets, the projected operating balances at the state and federal levels have been revised upwards for the current fiscal year. Federally, company tax receipts are expected to improve by an extra $3.2 billion while the additional minerals royalties is now expected to contribute an extra $389 million into the state government’s coffers.
In the case of the Federal Government, the projected FY2018 deficit in the budget was reduced from $29.4 billion (budget) to $23.6 billion (MYEFO), an improvement of $5.8 billion. The return to surplus remains projected for FY2021.
After adjustments for election commitments, the Queensland government is projected to deliver a net operating surplus of $485 million for FY2018, with further operating surpluses during the forward projections. The overall government debt situation has improved marginally, with debt shaved down by $300 million in FY2021 to $80.8 billion overall.
New spending initiatives during the election have added $366 million to government expenditure during the forward projections. These programs have been financed by the imposition of new taxes (land tax, foreign buyer tax, luxury vehicle duties and gambling tax) which will raise $491 million over the period to FY2021.
The economic assumptions embedded within the budget numbers appear to be conservative. In the short-term, growth in Gross State Product is forecast to rise to 3.0% by 2018/19 – unchanged from the original budget projections. However, the assumptions of higher population growth, employment growth and wages growth should lead to stronger economic growth outcomes than what is presented.
The projections of government debt remain essentially unchanged over the forward years. With what we have assessed as some conservative assumptions surrounding the budget projections, it might turn out to be a case of under-promising in order to over deliver by the new treasurer.
This is particularly the case with coal royalty receipts where coking coal prices are expected to retreat from early 2018 – despite reports there are still 70 coal ships queued at the Dalrymple Bay coal terminal.
Partner at BDO, Leisa Rafter said “the Mid-Year Review confirmed that the Queensland Government’s debt remains at a significant level, which is likely to act as a brake on any future tax reform. Queensland arguably has Australia’s most cumbersome stamp duty regime with both trusts and business assets still dutiable. Unless reform comes soon, Queensland businesses are at a disadvantage to counterparties in other states and territories."
When the 2018-19 budget is published in June next year, CCIQ are looking to see stronger initiatives to bring long-term debt levels down and restore the AAA debt rating. The annual interest bill on government debt is adding $3.4 billion to expenses during this current financial year and diverting finances away from critical services and potential payroll tax relief.