Back in June I mentioned that the new Newman government of Queensland appeared to be implementing a substantial austerity program in order to re-balance the Queensland budget. As I stated in the previous post, one of the major issues with the government’s budget is the highly optimistic forecasts used by the Queensland Treasury under the previous Bligh government.
They compare poorly to the current trends in the data.
Over the last 4 years the Queensland government budget debt has grown by 65% and now stands at around $15,200 per resident, which on a per capita basis is nearly double that of NSW and WA and three times that of Victoria.
Although these numbers appear poor they’re not really a surprise as the previous government had already predicted that the state’s gross borrowings would reach $85 billion in 2014-15 and Queensland’s debt has actually be growing steadily since early 2004. However, there is more to this story than just reckless spending. Queensland’s population growth has outpaced all other Australian states over the last decade by a large margin adding on average 95,000 people per year for the 10 years to 2011.
This population expansion required large infrastructure spends and, as the chart below illustrates, the Queensland government has been outspending other states, some with considerably larger populations, in recent years.
Based on the recent Costello audit report the new government is claiming that debt will reach $100 billion by 2020, but the additional $15bn may well be politically driven assumptions. Many parts of the report are yet to be released to the public so it is impossible to be sure, but as the the report was delivered by Peter Costello so it’s not hard to be sceptical.
In the meantime the Newman government has been set about trimming the public service, with 3,000 temporary staff already gone and a speculative target of 20,000. Those numbers, however, don’t include contract staff which have also been trimmed in large numbers in some departments. There has also been a significant reduction in many departments programs of work which is likely to have a flow-on effect to the private sector over the coming months and I have already seen a number of company forecasts mentioning the likelihood of lower revenues in Queensland due to the government budget.
As I stated in my previous post, there is little doubt that the Queensland budget needs to be re-balanced but it is the pace of the adjustment that is of concern. The rhetoric from the government appears to be fiscal consolidation at all costs and recently they have made some very odd political decisions such as cutting a literary prize and cancelling a school band competition to save very small sums of money. This week Campbell Newman made statements comparing Queensland to Spain.
Queensland could become the “Spain of Australia” if it cannot halt its slide into bankruptcy, Premier Campbell Newman said.
“Queensland has been bankrupted, is on the way to being bankrupted by poor and reckless financial management, and I have to sort this out,” he said before a Council of Australian Governments meeting in Canberra today.
“I’m saying that if we fail to act in a way that we are, that Queensland would ultimately be the Spain of Australian states. But that’s not going to happen because we are taking tough, decisive action.”
A quick glance at the trend in the yields on Queensland Treasury Bonds tell you that investors appear to feel the exact opposite.
The lesson from Spain is not that you cut willy nilly. It is that that you don’t overdo austerity when the private sector is aiming to deleverage. Newman should take note.