Queensland’s current economy boom will not be the normal

Thursday 15 December, 2016

Higher coal prices have meant an unexpected improvement in the State Budget bottom line, with a forecast operating surplus sitting at $2 billion up from $867 million.

Indeed, coal royalties added an additional $1.5 billion to the 2016-17 Budget, as reflected in the figures released by the State Government on Tuesday.

Nevertheless, Queensland’s fiscal deficit remains at $1 billion, which has implications for Queensland regaining its AAA credit rating.

This means the Palaszczuk Government is continuing to borrow money, which is adding to the debt burden.

What is concerning to the business community at present is the significant growth in public services figures under the current government. CCIQ would caution the government to resist ballooning the public service and using borrowings to fund payroll.

With the announcement of several packages aimed at boosting jobs in regional Queensland as per MYFER, CCIQ tentatively welcomes concerted efforts to use the operating surplus to create jobs outside of the South-East Queensland corner.

What is pertinent now is that the government, alongside the business community, develop these packages, provide greater detail as to their policy direction and roll-out, as well as conduct detailed cost-benefit analyses to ensure that these investments are sound, and will achieve lasting benefits for Queensland.

CCIQ aims to keep the government accountable on its claims regarding capital works spend. As indicated in the graph below, real spending on capital purchases as a percentage of Gross State Product has declined and then flat-lined over the last decade.

public sector graphic

In the context of a transitioning economy, investment in infrastructure and regional job-creation projects is key to securing a diversified economic future for Queensland.

We need a significant uptick in capital works spend as a percentage of GSP if we are to secure Queensland’s economic future.

Treasurer Curtis Pitt deserves credit where credit is due. The challenge moving forward is to exercise expenditure restraint, rule out any new taxes or charges, while distributing the unexpected windfall throughout the regions to secure Queensland’s economic future. 

CCIQ Analysis:

General Government Expenses

$52.927 billion MYFER

$345 million or 0.7 per cent higher than the 2016-17 Budget estimate 

A significant component of the growth in general government expenses can be attributed to the increase in the size of the public service.

CCIQ acknowledges this was an election commitment to ‘restore frontline services’ however, we have consistently cautioned the government to restrict any increase in the public service to population growth (which currently sits at 1.3 per cent) over the forward estimates.

Furthermore, most jobs created are centered on inner-Brisbane, undermining the government’s claims that these are indeed ‘frontline services’.

CCIQ urges the government to monitor and control this growth as increasing the public service is not a sustainable way to generate medium and long-term jobs growth.

General Government Sector Debt

$36 billion MYFER

$35.5 billion in 2015-16, forecast to increase to $37.8 billion in the 2016-17 Budget and revised down to $36 billion in MYFER. This downward revision is the result of higher operating cash flows, which is which is primarily the result of improved royalty revenues.

Total Government Borrowings

$73.75bn as at June 2017, down from forecast of $75.2bn.

Revenue

$1.5 billion MYFER

As noted, revenue increased primarily because of the upward revisions in the expected revenue from royalties.

Operating Surplus

$2.026 billion MYFER

Up from $867 million due to higher than expected coal royalties.

Employment Growth

Downgraded to 0.75 per cent from 1.5 per cent, averaging at 6.25 per cent steady. 

The expectation is that the unemployment rate will most likely persist around its current level (6.0 per cent trend).

With respect to the concerning participation rate, it is argued that as employment growth increases, this will also result in more people being encouraged to re-engage with the labour market, driving up participation.

The result of this however, is that the unemployment rate will most likely hold at its current level.

Transition to new sources of growth

The focus continues to be on development opportunities within the tourism industry, particularly growing markets and investment opportunities across Asia.

Infrastructure must also be a priority and something that will be needed as the residential construction boom wanes and activity in this sector returns to normal levels.

While residential housing has performed a critical role in maintaining economic activity as the state has transitioned to the post-mining boom economy, the benefit of this has peaked, so an increase in government money to drive key projects (regional road networks, etc) are necessary and will deliver long-term and lasting benefits.

Key MYFER measures

$360 million jobs stimulus package including:

•           $200 million to local councils

•           $160 million boost manufacturing and incentivize employers to employ in regional Queensland

Given that government expenditure on capital is declining, an upturn would deliver welcome assistance to overall economic activity.

Once again, there needs to be a cost-benefit analysis of any spending and, ideally, increased infrastructure spending should coincide with genuine efforts to find cost savings in other areas of government.

 

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