Budget steers a difficult course

Cameron Dick came to his first budget on Tuesday with a few handicaps. First, like his federal and state counterparts, the Queensland Treasurer is working within fiscal parameters turned a deep shade of red as a result of the coronavirus pandemic. Second, China’s aggressive trade war against Australia could potentially be devastating for Queensland’s coal exports. And third, the state’s debt problems already were deeply entrenched long before Mr Dick, a former barrister who completed part of his education at Cambridge, replaced Jackie Trad as Treasurer in May. Queensland lost its AAA credit rating on Labor’s watch in 2009. And in June last year, when COVID-19 was yet to appear, debt and spending were ballooning in Queensland to the extent that the first question in the budget lockup press conference was: “Have you given up on debt?” Last year, it went unanswered.

Judging by his efforts with this budget, Mr Dick is willing and able to tackle the issue. On Tuesday he admitted frankly that Queensland could be put on a “negative outlook” by ratings agencies. He will be heartened, then, by the news reported by Adam Creighton that S&P Global Ratings, after assessing the budget, says Queensland is “on a solid path to fiscal recovery” and has reaffirmed the state’s AA+ rating as “stable”. “For the first time in many years, Queensland’s debt levels will not be the highest in Australia,” it said in a statement.

In line with other states and the commonwealth, the price of COVID recovery in Queensland will be soaring borrowings, albeit at a bargain basement interest rate. Queensland’s total debt is forecast to reach a record $130bn by 2023-24 — a forecast hike of $28bn in three years. A $12.3bn collapse in revenue will be a major factor. In borrowing to rebuild, Mr Dick, like Josh Frydenberg, NSW Treasurer Dominic Perrottet and Victoria’s Tim Pallas, is following the Reserve Bank of Australia’s advice. “To do anything other than borrow to rebuild would condemn our economy to years of austerity and a far slower and more painful recovery,” Mr Dick said. He was at pains to point out that while NSW and Victoria will be carrying total debt levels exceeding 190 per cent of revenue by 2024, Queensland’s figure will be 174 per cent. The fact our largest states are in the same debt boat as Queensland has taken some of the political sting out of the issue for the Palaszczuk government. At the outset of its third term, Mr Dick has four years to lay the groundwork for a much-needed resurgence in private investment and job creation. He acknowledged as much in his speech, pointing to the need for regulatory reform to fast-track productivity gains.

Public sector wages growth has been a significant contributor to Queensland’s financial problems. During the five years of the Palaszczuk government, the public service has grown by 33,133 full-time equivalent employees — a 16.6 per cent rise while the state’s population has grown by only 8.2 per cent. At least the government seems prepared to slow down the runaway train. An additional 6168 full-time public service roles will be added this financial year, raising the employee expenses bill by 3.2 per cent. If achieved, this will compare favourably with an increase in employee expenses last financial year of 5.4 per cent. The relative reduction, as Sarah Elks and Charlie Peel report, is being driven by a wage freeze for public sector employees designed to offset the impact of COVID-19 measures.

One of its most important challenges is to encourage private sector growth. The budget addresses that issue up to a point, with a mix of temporary measures including payroll tax refunds, land tax and electricity bill relief for small businesses. Mr Dick should have taken payroll tax relief further for all businesses — it is a jobs killer, especially in hard times. Pruning it back should be a priority in future years.

The infrastructure spending outlined is well targeted, especially upgrades to the busy Gold Coast-Brisbane M1 highway, parts of the Bruce Highway and extending Gold Coast light rail south to Burleigh Heads. While the pandemic has crippled international and domestic migration rates, Queensland, the federal Treasury predicts, will be the beneficiary of domestic migration, with 86,000 people from other states expected to move north in the next four years. The OECD has sharply upgraded its growth forecasts for Australia. And as the nation roars out of recession, Queensland is well placed to capitalise on the impetus for growth. Better late than never, its newly opened borders are already helping tourism. Mr Dick has delivered a carefully calibrated budget for the times.