Crisafulli’s chance: time to reboot rotten state starting with tax and housing

LNP leader David Crisafulli during the party function in Brisbane. Picture: Tertius Pickard/NewsWire

Premier-elect David Crisafulli campaigned on offering a “fresh start” to Queenslanders. In no area of government is a fresh start needed more than in economic management. In no other state is our inflation crisis more acute. And yet Queensland represents the vanguard of Australia’s counter-productive, pro-cyclical macroeconomic policy misadventure.

In these circumstances, orthodox economics prescribes the government taking pressure off inflation (hence the cost of living) by exercising fiscal restraint – by cutting or deferring expenditures and avoiding tax cuts that could fuel demand.

When the economy is operating beyond its speed limit, pro-cyclical tax and fiscal policies are simply neutralised by the RBA via higher interest rates, only exacerbating the short-term financial pressures on households.

But we shouldn’t imagine higher deficits and interest rates cancel one another out costlessly. Slamming one foot on the accelerator and the other on the brake results in the car standing still – but it also burns out the brakes at best or blows the engine at worst.

With their $1000 electricity rebates, 20 per cent car registration discounts, 50c public transit fares, $200 kids’ sports vouchers, and who knows what else, outgoing Premier Steven Miles and Treasurer Cameron Dick did exactly that in what was easily the most economically reckless pre-election vote-buying spree I can recall.

How a state experiencing record levels of employment and terms of trade could be generating an $11bn (more than 2 per cent of gross state product) fiscal deficit this year (and in every year of the forward projections) boggles the mind.

As a consequence, net debt, which was just $2.6bn two years ago, has already increased ten-fold and is set to balloon to more than $60bn in three years’ time.

It remains to be seen whether Crisafulli and his soon-to-be treasurer, David Janetzki, fully grasp the economic challenge they’ve inherited – as well as the opportunity that lies before them.

Their economic plans for government, while containing some promising elements, were relatively threadbare. The question they need to ask themselves now is: Do they plan to coast for the next four years on these relatively threadbare plans, or do they really mean it when they say they want to give Queensland a fresh start?

If so, I see two clear economic policy priorities for the new government.

The first and most pressing is housing. Massive levels of interstate migration, substantially in response to the rising cost of housing in the southern states, has put tremendous pressure on the Queensland housing market, especially in Brisbane.

Just like in Sydney and Melbourne, local governments have failed to keep up with booming demand by allowing more houses to be built. The outgoing state government had a “Homes for Queenslanders” plan, but it failed to match the urgency and scale of the challenge Queenslanders face.

David Janetzki

The incoming government has pledged to establish a cabinet Housing Ministerial Taskforce in its very first week, which certainly conveys the right sense of urgency. But the substance and details they deliver will be what count. Any plan to tackle the housing emergency needs to avoid yet further demand-side stimulus, as undertaken by the outgoing government, and focus on rapidly expanding supply primarily by liberalising local government regulations.

Both the NSW and Victorian governments have correctly diagnosed the supply challenge and have set out explicit plans to liberalise local planning rules to make it happen. The new Queensland government needs to do the same.

It should pair this with scrapping the “Best Practice Industry Conditions” introduced by the Miles government, a wildly onerous set of construction workplace conditions that has contributed to a precipitous decline in construction labour productivity and thus Queensland’s broader housing and cost-of-living crises.

The other economic policy priority is tax reform. Queensland has arguably the worst tax system in Australia. Roughly 30 per cent of the state’s tax revenues come from each of payroll tax and transfer duties. The former is a direct tax on employment and the latter are among the most economically damaging forms of taxes that exist.

Steven Miles

And following years of tinkering, even these tax bases are riddled with exemptions that render them even more economically damaging per dollar of revenue raised. Today, Queensland’s fiscal sustainability is underwritten by its high terms of trade. But we know those coal revenues will decline, and royalties from other minerals hinge on continued growth in China – something that appears more precarious by the day. Queensland needs a tax system fit for its future.

Earlier this year, the Miles government announced that the Queensland Treasury would conduct a post-election review of property taxes to examine their role in the housing crisis.

But the tax system is just that – a system. So it ought to be reviewed as a system – in whole, not in part. And this ideally would be done independently of Queensland Treasury to ensure its recommendations live up to what Crisafulli in his acceptance speech said he wants: frank and fearless advice.

Queensland is the best state in Australia. It represents the frontier of Australia’s future prosperity. It needs a government that recognises this economic potential. And is willing to take hard decisions to enact policies to secure it. I hope the Crisafulli government is up to the task.

Steven Hamilton is assistant professor of economics at George Washington University in Washington DC, visiting fellow at the Tax and Transfer Policy Institute at the ANU, and a proud Queenslander.