State debt falls after ‘temporary’ royalties boom but China trade tensions remain ‘key risk’

Treasurer Cameron Dick has delivered the mid-year economic review, stating Queensland’s revenues were higher for 2021-22 and the state’s deficit and debt were lower than previously forecast.

Queensland is on track for a slightly higher than forecast surplus, while deficit has shrunk by half after the Sunshine State avoided extended Covid-19 lockdowns and boosted its unemployment rate.

But spending is expected to balloon by $2.6b this financial year in the wake of Covid-19 grants and revisions to the state’s defined benefit superannuation liabilities.

Total debt is still inching towards $128b over the next four years, however updated forecasts now place it $710m lower in 2024-25 compared to the June Budget.

Speaking at Thursday’s Mid Year Fiscal and Economic Review, Treasurer Cameron Dick said revenues were higher for 2021-22 while the state’s deficit and debt were lower than what had been forecast.

“It’s the dividend for the hard work and commitment of 5 million Queenslanders over two years of the pandemic,” he said.

General government sector net debt has been slashed by $6.9b over the forward estimates while the deficit has shrunk by more than half since June – now expected to be $1.49b for 2021-22.

The deficit reduction has largely been driven by an increase in coal prices and an increase in stamp duty receipts amid greater house purchases and higher property values.

The Treasurer said the $8b increase in revenues was driven partly by a one-off spike in the value of coal exports but noted this would be temporary with coal royalties forecast to halve to $2.61b in 2022-23.

Queensland's Treasurer, Cameron Dick, said the state’s surplus will grow to $158m which is largely due to higher revenue and the Covid-19 response. Picture: Richard Walker

“We also expect the Commonwealth Grants Commission to penalise Queensland for these increased royalties in future years by reducing our share of GST revenue,” he said.

The Treasurer said there wasn’t “a mad rush to surplus” as he revealed the government was now eyeing a $158m surplus over the forwards – up from $153m in June.

And he pledged to close a “land tax loophole” that allowed investors with a significant property portfolio to claim the tax-free threshold several times.

Mr Dick said landholders who only own land in Queensland would not be affected by the change that requires legislation.

Deputy Opposition Leader David Janetzki slammed the announcement, accusing the government of creating another tax that would funnel back to renters’ pockets.

“This is at a time of record high social housing waitlists, record low rental vacancy rates and rising homelessness,” he said.

But Mr Dick said it wouldn’t impact renters and accounted for less than one per cent of property.

Queensland Treasury noted the possibility of an earlier-than-expected tightening of monetary policy, due to rising inflation and a surge in property and petrol prices, could affect revenue.

It also noted ongoing trade tensions between Australia and China remained a “key risk” to Queensland’s exports, but Mr Dick – who is also Trade Minister – said the state had a strong relationship with China.

“We’re going to continue to foster fraternal trade relationships with China, we think that’s important,” he said.

Mr Dick said the economic update was based around a number of assumptions concerning Covid-19 – including that any outbreak would be largely contained because of high vaccination rates.

“We assume that the borders will remain open, no widespread lockdowns are enacted and that the interstate border is assumed to remain open across the forecasting period with the international border assumed to open gradually in 2022,” he said.

Meanwhile the public service wages bill is forecast to further balloon by almost $1b more than what was predicted six months ago – now expected to reach $31b over the forwards.

It comes as new figures revealed the public service had grown by 4434 people between September 2020 and September this year.