Sentiment nosedives in Queensland

Over the last couple of months I’ve written a few posts covering the new Queensland Liberal government’s plans to implement an austere state budget under the banner of “putting Queensland back on track”.

Since Campbell Newman came to power the CourierMail has been running a near-daily campaign documenting the latest policy statements and including a job-loss tracker with nearly every story . What has become apparent is that although this government obviously has a clear idea of what they are attempting to achieve they are failing badly in the area of communication and media management.

When the government first came to power they swiftly announced that the state’s budget was unsustainable and that large cuts would be needed to be made in order to bring the Government’s coffers back into the black. This was followed up with a report headed by Peter Costello that made a number of recommendations including raising taxes and selling state owned assets. At the same time the new Premier led the charge of the frugality with cuts to things as small as literary awards and school band competitions while announcing significant cuts to the size and shape of the public service.

It isn’t hard, however, to find evidence that this new austerity is somewhat ideologically driven as the state still managed to find money for a goat race in Barcaldine, $110 million for a racing industry upgrade and just enough money to give themselves a pay rise.

The government is now looking at options for asset sales, and continues to review the services delivered by the public service with continuing cuts. More recently the attorney-general has been caught out by the media attempting to cover up cuts in the court system that he was obviously about to announce.

During the election campaign Premier Newman had stated that no “front-line” staff would be cut, but this week announced that up to another 25,000 public servant could lose their jobs due to “re-classification”.

The Premier this afternoon defended his Government’s decision to change the decade-old definition of “frontline” and declare 25,000 more staff non-frontline.

The move, revealed by The Courier-Mail this morning, puts the workers in the scope for job cuts as only those on the frontline have been guaranteed their positions are safe.

Mr Newman said he “didn’t know” if those affected had been personally notified but denied the news would add to fear levels within the state’s public service.

It must also be noted that it isn’t just public servants, but many contractors who have lost their jobs along with non-government service providers and businesses who have the state as their primary customer. Although after the September 11th budget it may be revealed that a total of less than 10% of the public service will be cut, my gut feeling is that the uncertainty created by poor communication and flow-on effects is having a major impact on the Queensland economy.

But it isn’t just the small end of town that is in focus with announcements on Friday from the state treasurer that the corporate sector is also in their sites:

Queensland Treasurer Tim Nicholls confirmed on Friday that the Liberal National Party government was looking to increase corporate taxes to help raise another $1 billion in revenue in the budget to be handed down in September.

Households would be immune from any further tax pain, but Mr Nicholls said business would be in the firing line. Miners could face a rise in coal royalties.

“We think that families in Queensland have done enough of the heavy lifting so far,” Mr Nicholls told ABC Radio. “So what we’re looking at is more corporate taxes.”

The state government wants $4 billion in savings over the next three years, and the Treasurer said about $3 billion would come from spending cuts, including those to the public service.

I stated in my previous post that I surmise from statements made by the new government that they consider the state budget to be somehow disconnected from that of the private sector , and therefore pulling hard on the fiscal brake would have a limited fallout. I’m not sure exactly why they think this. Perhaps it’s misunderstanding the macroeconomic dynamic that drove the Howard/Costello years in which the private sector compensated for government surpluses with increased indebtedness.

Either way, in a post-GFC world I think it is very naive to expect the same result and I’ve therefore been expecting to see evidence that fiscal tightening is having a negative impact on the private sector in Queensland. I have noticed it anecdotally in housing and in unemployment data but it is far too early to make calls because of time lags in those datasets. The latest Red book from Westpac, however, couldn’t be clearer with the leading indicators for Queensland displaying a major divergence from the rest of the country in the month of August:

• Qld was at the epicentre of the Aug sentiment fall with a 9.5% drop in consumer sentiment in the state effectively accounting for 1.9ppts of the 2.5% decline nationally.
• Despite its ‘resource state’ status, Qld consumer sentiment has consistently under performed the rest of the nation over the last 3yrs. It was hit harder by the 2008-09 crisis and has seen non-resource sectors struggle – particularly its tourism, housing and related industries. This shows most clearly in labour market outcomes: Qld’s unemployment rate rose 2-21⁄2ppts in 2008-09 and has remained above the national average since.
• The Aug sentiment reading was also impacted by deepening concerns around the state’s public finances. An audit is currently underway with a state budget due in Sep expected to be a ‘tough’ one that will include public sector job cuts, tax increases and asset sales.
• The Aug fall in sentiment seems to go beyond this issue though. While Qlders had sharply weaker views on the near term outlook for the economy, jobs and family finances, there were even bigger falls in ‘time to buy’ and ‘finances vs a year ago’ – indexes that track current conditions that should not be impacted by the prospect of state fiscal tightening.

So let’s just say I will be watching the housing, credit and unemployment markets in Queensland a little bit more closely over the next few months, and , as with Europe, I remind people that fiscal austerity in and of itself does not necessarily mean good financial management.