I’ve been following the Queensland economy a little more closely over the last few months since the new Liberal government came to power and announced a new program of fiscal conservatism. As I stated in my previous posts on the matter ( here and here) , although I think fiscal consolidation is necessary the communication strategy has been woeful and I suspect will add to the downside impact.
I am also concerned that these cuts are, in part, the result of ideology and I have detected from previous statements from the Newman government that there is some belief that the government budget is somehow disconnected from the broader economy and therefore fiscal tightening, even of the scale of billions of dollars, should have limited, if not a positive, economic effect.
As we’ve seen with Europe, this sort of thinking is quite dangerous and I as a Queensland resident I am more than a little concerned that an overzealous attempt to “fix the problem” has the potential to do the opposite.
The state budget is due to be delivered on the inauspicious September 11th and the government has made it clear that lowering the deficit is a major policy goal and little else is of importance. Speaking at a property council luncheon yesterday, Mr Newman stayed on message hinting that there is little in the way of new relief for the ailing property industry on the way. From the AFR:
Queensland Premier Campbell Newman has ruled out land tax relief in next week’s budget but hinted at some changes to stamp duty to kick-start the ailing property sector.
In his first speech to the property sector since becoming premier in March, Mr Newman flagged the long-promised overhaul of planning regulation, to cut both red and green tape, would be released shortly.
But the Liberal National Party premier continued to ramp up the rhetoric ahead of his government’s first budget next Tuesday warning it would be tough.
“We have inherited a real mess and we do have some important and some tough decisions we have to make,” Mr Newman told more than 500 people at a Property Council of Australia lunch in Brisbane on Tuesday.
“But I promise you we won’t be shying away for one second about making the necessary decisions even if they are hard or, on occasions, unpopular, to get the budget sorted out because if we get the budget sorted out ultimately we sort out the future of this state.”
Despite the build-up to the budget being over-shadowed by planned cuts to the public service – which are expected to total about 15,000 – Mr Newman said the overall prospects for the economy were strong.
“In terms of the broader economy we are very optimistic. It might be hard to see now but I think we will achieve 5 per cent economic growth [this financial year].”
Taking a look at the history of Qld’s GDP you get an idea of just how big a call that is:
On top of a government program aimed at saving $4 billion dollars over the next 3 years, coal is under pressure , the housing market remains in the doldrums and private sector credit growth is at 35 year lows. Under these circumstances it is very difficult to see exactly where growth of that magnitude is going to come from over the next FY and that is a considerable concern. Part of the issue with the budget as it stands was the highly optimistic revenue expectations of the previous Bligh government under the belief that the housing market would continue to expand ad infinitum. If the state government is now forecasting 5% GDP growth, even in the face of its own program of fiscal consolidation, I fear we’ve just replaced one form of delusion with another.