Palaszczuk and Pitt doing it by the numbers

Thursday 15 June, 2017 | By: Steven Gosarevski | Tags: State Budget, jobs and growth, State Election, coal royalties

The Palaszczuk Government has pledged to improve the Queensland economy by boosting growth and delivering jobs.

Tuesday’s State Budget was the focus – the third from Treasurer Curtis Pitt and last before the next State Election – and the hoped-for generator of those ambitious plans.

The Budget by the numbers

Among the initiatives announced were a construction program investing in social housing and infrastructure, skilling programs and apprenticeship incentives to boost employment of jobseekers and increases to front-line services in the areas of health, education and law enforcement.

Despite the ambition of the Budget to deliver growth and employment, the economic projections and assumptions embedded within the Budget financials indicate conditions will remain tough over the period ahead.

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At 3 per cent annually, growth in Gross State Product (GSP) is forecast to accelerate modestly from current levels (2.75 per cent in 2016-17). The improved rate of economic growth is expected to translate into a lift for employment growth – rising from 1.25 per cent during 2016-17 to 1.75 per cent in 2020-21.

Despite the improvement in employment growth, the unemployment rate is forecast to remain stubbornly above 6 per cent during the outlook years. It appears the expanding population and rising workforce participation rates are the reasons for the elevated unemployment projections.

If these projections are realised, it will be a disappointing outcome. The long-term trend for Queensland economic growth has been 4.0 per cent since 1990 and has traditionally been higher than the national average.

The Budget projects slower than trend growth going forward despite the strong levels of population growth during the forward years. If employment growth does not accelerate above the budget projections, the state will be facing an unemployment problem.

In the short term, the impact of Tropical Cyclone Debbie is estimated by Treasury to be approximately $2 billion in economic output (0.75 per cent of GSP) mostly over the 2016-17 and 2017-18 financial years. The impact will fall heaviest on the mining, agriculture and tourism sectors with output recovering at different speeds as infrastructure is repaired, crops re-planted and resorts under renovation re-open.

Revenue surge based on higher coal prices

The estimated level of revenue for the 2016-17 fiscal year jumped 10.7 per cent to $56.4 billion, led by a spike in royalties which almost doubled to $4.0 billion dollars for the past year. This is a substantial increase on the 2016-17 MYFER estimate of $55.0 billion.

Over the past decade, government revenues have grown at a rate of 5.8 per cent annually. At $56.4 billion (2016-17 fiscal year), revenue as a proportion of nominal GSP is 16.0 per cent.

Looking forward, the Budget expects the growth in revenues to slow considerably to an annual pace of 1.1 per cent in the period to 2020-21. The temporary boost from elevated coal prices is expected to reverse for the 2017-18 financial year, reducing royalty revenue by $900 million, while lower dividend payments from Government-Owned Corporations (GOCs) will also impact the budget bottom line.

Overall, total revenue as a proportion of GSP is expected to fall to 14.0 per cent by 2020-21. 

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Boost to front-line services lifts government expenditure

Total expenditure is estimated to rise 7.2 per cent to $53.6 billion in 2016-17. Over the forward estimates period, expenditure is expected grow by 2.2 per cent annually over the next five years. The government cited growing education and health services as a cause for the growth above the average wage revenue.

Employees expenses at $21.2 billion represents 40 per cent of total operating expenditure.

The public sector full time equivalents are expected to grow by an additional 6003 employees during 2017-18, bringing the total public sector workforce to 222,639 FTEs.

With the government’s 2.5 per cent wage policy, employee expenses will come to $22.4 billion under budget.

A clear majority of the new FTEs are in frontline services, with the headcount in Queensland Health, Education and Training, and Justice and Attorney-General increasing by a collective 5600 persons. It should be noted this growth is higher than the expected Queensland population growth.

The other key contributor to increased expenses for 2017-18 is the other operating costs category. These costs are inclusive of the delivery of the 2018 Commonwealth Games, anticipated student enrolment growth and justice reforms. These expenditures are expected to decline after 2017-18 once the Gold Coast Games have finished.

General government expenditure as a proportion of the GSP is budgeted to remain steady at 15.2 per cent in 2017-18 before declining to 13.9 per cent by 2020-21. The government is projecting expenditure growth as a proportion of GSP to decline to 13.9 per cent by 2020-21 – which is essential to maintain an operating surplus. 

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Operating surpluses projected with debt also rising

In the three years leading up to this current financial year, net operating surpluses had totalled $1.9 billion. Following the big spike in coal royalties, the estimated surplus for the current 2016-17 fiscal year is $2.8 billion.

These surpluses have been used to bring down total government debt from a high of $75.2 billion in 2014-15 to $73.1 billion in 2016-17. Of this total debt figure, $33.9 billion is attributed to the general government sector, while the GOCs held $39.2 billion in debt.

The government intends to maintain an operating surplus in each year during the forward projections period, amounting to a cumulative $1.4 billion in the period to 2020-21.

While the government looks to run a balanced the budget, debt levels in the general government sector are projected to rise by $7.3 billion during the outlook years to $41.2 billion in 2020-21. The reason behind the rising level of debt is the increased capital expenditure program expected to take place over the forward outlook.

Overall, the size of the public sector debt is expected to reach $81.5 billion by 2020-21. As a proportion of GSP, this amounts to 19.3 per cent, a reduction from the highs of 2014-15 at 24.4 per cent of GSP. The Queensland government still maintains a strong debt rating of AA+ by Standard & Poor’s and Aa1 with Moody’s.

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