Economists warn Queensland’s big spending budget could drive inflation

Economists warn Queensland’s pre-election budget could hamper Jim Chalmers’ efforts to keep a lid on inflation.

Queensland Premier Steven Miles in Brisbane on Monday. Picture: Liam Kidston

Queensland’s big-spending pre-election budget could hamper Jim Chalmers’s efforts to beat back high inflation and keep interest rates higher for longer, economists say.

Premier Steven Miles has flagged that the June state budget would “do more than a government ever has in a budget to put more funds back into the pockets of families”, despite inflation remaining stubbornly high.

A new cost-of-living package – expected to top $8.2bn – would come months out from the Oct­ober 26 state election at which the third-term Labor government is facing a likely convincing defeat.

Mr Miles on Monday insisted financial relief in the budget would be “counter-inflationary” but he would not be drawn on how it would be targeted. “You’ll know when you see it,” he said.

Former commonwealth Treasury economist and director of Adept Economics Gene Tunny, said the Queensland cost-of-­living package could be seen as a “blatant vote-buying exercise” and could work against the commonwealth’s fiscal policy.

“It makes it harder for Jim Chalmers,” he said. “Ideally, you’d have the federal and state governments working together to try and get inflation under control.

“The federal government is going to have to try to really tighten up the budget because they’re going to be concerned about inflation, they don’t want to have another interest rate rise.

“Meanwhile, you’ve got a state government doing something that is potentially counter to that.”

The federal Treasurer has flagged some cost-of-living relief in his May budget, but said it would be “targeted, responsible and affordable”.

“There will not be big cash splashes in the budget, simple as that,” Dr Chalmers said in March.

Mr Tunny said some targeted cost-of-living relief by the Queensland government could be justified, but it should not be funded through borrowings.

“Coal prices are coming down and they’re getting less from GST, so given the state of the budget, it looks like they’re not going to have much choice but to fund it with borrowing, in which case that is just bad fiscal policy,” he said.

“This is going to create a continuing drain on the budget, because there’s an interest bill associated with that debt.”

New Treasury figures released this month forecast total government debt would surge to $188bn by mid-2027, $41bn more than was predicted.

On the government’s preferred measure of net debt, which excludes publicly owned companies, borrowings are forecast to hit $73bn by mid-2027, up from $46.93bn estimated in the budget.

Treasurer Cameron Dick would not say whether the pre-election cost-of-living package would be wholly funded by taking on more debt, but has said the government would “go into deficit as a state if it means keeping Queensland families and households in surplus”.

Joe Branigan, director of ­Tulipwood Economists, said increasing public expenditure when the economy was already near capacity could feed inflation.

“There’s three reasons to be cautious about the proposed spending,” he said. “First, it would counteract federal fiscal and monetary policy, which is in a post-Covid tightening phase.

“Second, the fiscal stance of the Queensland budget is arguably already unsustainable given net debt is rising rapidly. And third, the quality of the expenditure seems to be poor.”

Higher-than-predicted inflation figures for the March quarter released last week appeared to dash hopes of an interest-rate cut this year.

Consumer prices overall accelerated by 1 per cent in the March quarter, well up on 0.6 per cent in the three months to December.