Primer: Queensland 2020-2021 Budget

With the Queensland State Budget to be delivered by Treasurer Cameron Dick tomorrow, we thought it would be useful to provide some budget context and guidance about what to look for.

Other State budgets: some numbers

Over the last few weeks the NSW and Victorian Treasurers handed down their budgets. Here are some of their high level numbers:

NSW

$16 billion deficit; net debt of $128.3 billion in 20/21, rising to $190.8 billion in 23/34.

Unemployment is expected to peak at 7.5% in the final quarter of 2020 and forecast to be 5.25% by June 2024. NSW's forecast economic performance numbers are set out below.

Victoria

$23.3 billion deficit; net debt of $87 billion in 2020-2021, rising to $154.8 billion in 2023-2024.

Unemployment currently at 8.35% and projected at 5.75% in 2023-24.

Victoria's forecast economic performance numbers are set out below.

What has been said so far

Last week in parliament, Treasurer Cameron Dick said “there will be no new or increased taxes” and criticised NSW government’s forecast of $191 billion in debt by 2023-24.

The Treasurer has also said that in addition to the $4 billion announced prior to the election to fund new commitments, that there will be additional borrowings to fund operational deficits.

The budget may forecast a rise on Queensland’s current debt forecasts of $102 billion.

The Government has said that a second wave of COVID-19 in the Queensland community would cost and estimated $3.1 bill per month.

Comparing apples with apples

Since taking on the role, Queensland the Treasurer Cameron Dick has been at pains to distinguish Queensland general government sector debt from total government debt.

According to the update on fiscal position published by the government in July this year general government sector gross debt was forecast to be $59.4 billion in 2020-21.

Government sector debt is held by the Queensland Government for its expenses and operations as a government, running schools, hospitals, police, and the various public service agencies and programs.

According to the fiscal update the debt of Queensland’s Government Owned Corporations (GOCs) was estimated at $41.3 billion for 2020-21. This debt is held by Queensland corporations which generate revenue, own assets, invest in their operations, and operate under commercial principles, in-line with policies established by codified structures of governance.

Most debt figures discussed in the media include general government sector debt as well as GOCs.

So why does the Treasurer want to talk about general government sector debt?

In short it is because while NSW and Victoria have largely privatised their government owned corporations, removing them and their debts from the government’s balance sheet.

Queensland is different.

Queensland has privatised far fewer of its electricity generation, transmission and distribution businesses, its ports, and its water utilities. The Treasurer’s argument is that including the debt of these GOCs leads to a skewed and outsized perception of Queensland’s indebtedness.

At the same time, taxpayers will never be required to fund GOC debt as it will be funded through their operational revenue.

And when GOC debt turns a $60 billion state sector debt into a total government debt of over $100 billion, you can understand his thinking.

What the Reserve Bank of Australia has said about debt spending

Queensland's Treasurer has regularly referred to the RBA’s statements on the importance of government borrowing during the pandemic recovery, in-order-to support the economy. Here is an extract from Governor of the Reserve Bank, Philip Lowe’s comments to the House of Representatives Standing Committee on Economics on 14 August:

I would like to close with some general comments about the economic policy response to the pandemic. While monetary policy has played an important role, it has been fiscal policy that has provided much of the support to the Australian economy. This is quite a change from how things have worked over recent decades and it is being accompanied by a significant increase in public borrowing as governments work to limit the hit to people's incomes.

This shift in fiscal policy is quite a shock for a country that has got used to low budget deficits and low levels of public debt. In that context, it is worth pointing out that:

• By borrowing today to support the economy we are avoiding an even bigger loss of output and jobs that would damage our economy and society for years to come, which would put ongoing strain on the budget.

• Australia's public finances are in strong shape and public debt here is much lower than in most other countries.

• The overall national balance sheet is also in a strong position after decades of good economic performance.

• Government's financing costs have never been lower, with interest rates being the lowest since Federation.

This all means that the expected increase in public debt is entirely manageable and is affordable. It is the right thing to do to borrow today to help people, keep them in jobs and boost public investment at a time when private investment is very weak. There will always be debates about the precise nature of programs and about how much support should be provided, but the general strategy that we have is the right one.