Austerity beckons Queensland

I mentioned earlier this month that the new Queensland Liberal government’s cost cutting program had begun including what appears to be a fairly substantial purge of the public service. As far as I am aware this is ongoing and more recently Campbell Newman, the state Premier, has been softening up the state for more cuts:

Mr Newman signalled that the state’s debt might be even worse than the forecast $85 billion by 2014/15, and said the government would have to work to rein in capital and recurrent expenditure.

The government has already announced it will not renew temporary contracts in non-frontline roles, which could see 40,000 public servants go.

Mr Newman on Tuesday could not guarantee that permanent positions weren’t also on the chopping block and said he would wait for Peter Costello’s audit into the state’s finances.

‘‘That will then set the path forward if we have to do anything different then we are currently doing,’’ he said.

‘‘I’m trying very hard to protect all the permanent employees’ jobs.’’

Queensland lost its AAA credit rating in 2009 and there has been recent speculation that Fitch is looking to downgrade the state further. When Mr Newman came to power he ordered an audit of the state’s finances with the promise to return the state to fiscal sustainability, including the AAA, within 3 years. The task of auditing the finances was given to former federal treasurer Peter Costello.

Today Mr Costello released an interim audit report to the government and the news is, of course, “far worse than expected”. Well that is  unless you are a MacroBusiness reader, in which case you would probably have a fair idea that the Bligh Treasury never really came to terms with the “new normal”:

Today’s report provides an outline of the current state of Queenland’s finances and premilinary recommendations:

Figures

  • Gross debt expected to be as expected $64 billion in 2011/2012, reaching $100 billion by 2018/19 unless urgent action is taken to pay it down.
  • Interest on the debt will be $115 million a week, or $685,000 per hour.
  • Interest is the fastest growing government expense in Queensland, over health, education and public transport.
  • Gross debt has increased more than tenfold in five years.
  • Expenses grew at an average annual rate of 10.5 per cent between 2006 /07 and 2010/11, while revenue grew 6.9 per cent.
  • Between 2000/01, employee expenses increased by an average of 8.7 per cent per year and full-time public service numbers have increased by 40 per cent since June 2000.
  • The commission recommends the government aim for a $3 billion improvement to the bottom line over three years to 2014/15.
  • The budget deficit using a fiscal balance is $6.634 in 2011/2012 and is projected to be $9.504 billion in 2012/13.
  • Without corrective action, the fiscal deficit in 2015/16 would be $19.7 billion.

Recommendations

  • Asset sales.
  • The government retain its three per cent cap on annual growth in employee expenses, beyond the 2015/16 cap.
  • Apply land tax to all parcels of land, with a general exemption for the principal place of residence.
  • A temporary deficit reduction levy applied to all rateable properties. Those with multiple properties would pay the levy multiple times.
  • Increase mining royalties, in line with levels in New South Wales.

Given that this is quite obviously a political as well as an economic exercise it is very difficult to verify some of the predictions. But there is no doubt, given the previous Treasury’s highly optimistic projections, that Queensland will require some significant fiscal adjustment in order to bring revenue and expenditure back into balance. As I mentioned in my previous article my major concern is not that this has to occur but that the government will try to implement it too quickly, and by doing so cause further damage to the economy. Noises made by the Treasurer today may suggest that the burden of austerity will get heavier. From AAP:

The Queensland government has ruled out selling public assets before putting it to voters, but tax hikes are being considered to tackle the state’s debt crisis.

Former federal treasurer Peter Costello has described his audit of the state’s books, and recommendations to repair the economy, as a “menu” of options the government could consider.

Treasurer Tim Nicholls immediately ruled one of them out.

Queensland landholders won’t be slugged with a $100 levy per property, a measure that would have raised $200 million annually.

The impost was not in line with the government’s commitment to lower cost of living, he said.

But other tax hikes are on the table ahead of the September budget. They include the prospect of raising mining royalties and gambling taxes.

We will need to wait until September for the final report and the budget.

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Comments

  1. steven_packMEMBER

    “full-time public service numbers have increased by 40 per cent since June 2000.”

    I’m not even a Queenslander and that annoys me. How on earth can a government justify that?

    • pop increase… and they might have been understaffed before? statistics in isolation aren’t really that helpful for drawing conclusions.

      • As against the current Premier employing a former treasurer who sold the national assets off, put the proceeds in his own super fund, and then had the gall to call it a sovereign wealth fund?

        • Geez that eats at me – every time i think about it i want to take all my tax money back! Pack of crooks.

        • Nah It’s a FUTURE fund to pay for all the liabilities incurred in the past! I didn’t hear him call it a sovereign wealth fund. I might have to bow to superior knowledge on that.
          Again typical of politics these days…spin! spin! spin!

          However it’s not only politicians. Lying seems acceptable now at all levels of politics, business and society! The main criterion for judgement is whether you get away with the lie and whether you gain a profit by doing so.
          I remember years ago Laurie Oaks, in the Bulletin, calling John Hewson a fool because he told the truth leading up to the famous election he lost to Keating. Oaks himself didn’t have enough integrity to realise what he himself was saying.

          • Royale With Cheese

            “Not only does Australia have a sovereign wealth fund, its fund is so respected that an Australian – the former Commonwealth Bank chief David Murray – was the first chairman of the International Forum.

            Australia’s sovereign wealth fund – the Future Fund – is far better understood outside the country than in it”

            http://www.smh.com.au/opinion/politics/whether-sovereign-wealth-or-future-the-fund-needs-funds-20110913-1k7l8.html#ixzz1xqB7dB8V

          • Stormy Waters

            So would you prefer to have a $80bn unfunded pension liability sitting on the Gov’s balance sheet?

            I suppose the better thing would have been to make the Future Fund a true SWF and to have not passed through all those tax breaks/middle class welfare and used them to fund the pensions instead.

          • So would you prefer to have a $80bn unfunded pension liability sitting on the Gov’s balance sheet?

            Yep, at least then the public servants (including and mainly pollies) will be careful about how taxpayer funds are spent and try to balance the budget – Screw the budget and they screw their own pension.

            Either that or put it in effing fee gouging, under performing AMP Super like the rest of us.

            With FF, part of the PS pension is assured regardless of the state of the budget or the country.

            PS: Public servants give themselves a generous pension and then call it “unfunded liability”. Well, they created the liability in the first place!!

  2. Time for a big fat land tax that includes residential (with a surtax if no house is built on it)would be a good way to stop land banking and stimulate the building industry.

    • That’ll happen, just not as overtly as the $100/property hit recommended by the audit. Probably just a few “land value” adjustments over the next few years, all 100% due to the carbon-tax of course.

      The most interesting part is if/how they’ll make a grab for a slice of the mining pie. Can’t have the state going to the wall while the dirt/dollars are flowing offshore, but we’ll see how that plays out.

      • Especially when low tax avoiding mining industry is asking for corporate welfare as much as they do (infrastructure spending / Training etc…)

      • But I dont think this would achieve their aims as half the beenfit of a new land tax would be for people to know they are being charged it. THen you’d actually stimulate building

    • current land tax rates in QLD are significantly lower in QLD than in NSW and VIC, right from the big $600k tax free threshold to the low rate upper band.

      Politically they will have a go at cost cutting first, but land tax reform really is the only way forward here.

      If royalty rates aren’t legally set in stone, they could charge higher royalties on Coal – base it on the RBA commodity index being above a certain level. Effectively would work out to be a sneaky Super Profit Tax at a state level.

  3. Strange, isn’t it?

    Come July 1, the PPOR Stamp Duty discount, previously abandoned by Madam Bligh, will be reinstated, dropping the stamp duty on your average $500k house by about $8k.

    Wonder how long that will last given this latest outlook?

  4. A nice graphic for this post would have been Campbell Newman in a beat up Austin A40. Maroon of course.

  5. StanGoodvibes

    Can someone tell me how much longer my income is going to be levied to pay for the flood damage for ‘the smart state’?

    And possibly, just where all that money is going?

    • The flood levy only applies to taxable income derived from 1 July 2011 to 30 June 2012.

  6. DE “my major concern is not that this has to occur but that the government will try to implement it too quickly, and by doing so cause further damage to the economy”

    The solution can’t always be “So we’ll just let the debt grow a bit bigger until there is better time to pay it off.” Exactly when will there be a better time? This may be as good as it gets.
    Of course, anything that keeps the present systems, and deficits, in place is just continuing the unsustainable policies of the past. It has to stop. The sooner we start trying to correct the problems the less damaging it would be.
    This is not to underestimate the dislocation and suffering that will be involved. The egos of these maniacs is going to cost ordinary people dearly. I think I’ve posted often enough about the answers to the problems to indicate that I don’t underestimate the damage.

    Note also the possible inflationary consequences in this if State Governments continue to raise utility charges to cover interest and debt repayment. In these recommendations Costello’s lot have avoided recommendations that directly feed into the inflation numbers. Never the less Governments will have to consider this alternative.
    Tim Nicholls should not rule anything out until the serious maths are done. It’s likely we all will have to pay more for everything in the very near future. Politics has got to stop and the serious questions of the real parlous state of our economy must start.

    I KNOW inflation CAN’T happen. Everyone says so.

    • “Politics has got to stop and the serious questions of the real parlous state of our economy must start.”

      Are you being serious? They are politicians so that’s exactly what they do. Even bringing in Peter Costello to do the audit was political which is something that they could easily have avoided if they weren’t so politically minded.

      • +1 They’re all hopeless. Even after a crushing win they are still playing stupid political games with taxpayer cash.

      • littleguy…Just for clarity I was saying about Tim Nicholls the ‘politicing’ has to stop. We need to just deal in facts for a while.
        I’d guess I’ve lived quite a bit longer than you and I have never seen the stupid policing stop yet. So yes I was being serious but with no hope.

    • There’s no doubt they’ll be squeezing the services that people need to live.

      Cost of living going up and assets deflating?

      • Jumping jack flash

        absolutely no doubt of that. But the CPI will continue to head down because retailers will continue to discount like mad, wondering why nobody is buying any of their stuff…

        Picked up a pair of leather shoes for $20, reduced from $30. Unthinkable! Even 12 months ago they would have been $45 or $50. Sure, they’re Taiwanese sweatshop mass-produced rubbish, and will fall apart after 12 months or less, but I got them for $20. Even so, there is still room for prices to move downwards. I’m guessing the shop got them for around $10 or less, and they were produced for about $5 including materials.

    • An “insider”, what a laff.

      An ex state employee who can’t justify his salary perhaps? Mr Bligh?

      Here’s one comment on that article which is much closer the mark;

      “Sorry, totally inaccurate. … I have had first hand exposure to the feather bedding, blatant nepotism, laziness, meetings masquerading as activity, empire building, tribalism, fudging of output measurements and expensive whacko projects that never get delivered. If the bloke that wrote this story claims to be an “Ex-insider”, my bet is that he was a favourite of the previous government with his snout in the trough and Newman cut off his supply.”

      Qld Public Service was a job making haven for both State and Federal Govt mates and various hangers on.
      Now it will be more about delivering services, a welcome change.

      • Phil the engineer

        “Now it will be more about delivering services, a welcome change”

        And whom exactly will be delivering these services? A large chunk of the cuts are front line QLD Health staff.

        • I wouldn’t call managers, coordinaters , backroom gofers and assorted bean counters frontline staff.

          Unless your missing the point Phil, it’s time for us to live within our means. Are you prepared to pay more tax for the “services” You demand?

          It’s time to roll back the billions ofwaste , and if you want the service then you pay for it.

          • Phil the engineer

            I guess you know these people personally do you? Or are you just reading the LNP’s press releases.

            I don’t have a problem with paying more tax to maintain services, rather than ending up with the pitiful lack of public services and infrastructure that Howard and Co gave us and Cando seems to want to emulate.

    • The Patrician

      This statement issued this morning by Qld state government to all Qld public servants.

      This is your Captain speaking

      “The current State Government Departments Certified Agreement 2009 notionally expires on 31 July 2012. Since the beginning of May, officers of the Public Service Commission have been meeting with Union representatives to negotiate a replacement agreement which would provide for your pay increases over the next three years.
      Last Friday, 15 June 2012, the Queensland Government made an offer to the Unions.
      I would commend this agreement to you. The offer incorporates a fair pay rise of 2.2% per annum promising an increase in real wages – with the annual national inflation (CPI) rate currently at 1.6%.
      Given recent news of Government’s budgetary pressures, we believe the offer balances the need to reward hard working public servants while being fiscally responsible.
      As part of the proposed agreement there will be a key savings initiative which involves the withholding (i.e. freezing) of all increments (salary adjustments within a classification level) where applied under relevant Awards for the life of the Agreement.

      It is proposed that matters of a policy nature will be removed from the Agreement but will continue to apply under departmental policy.

      The Government offer also seeks to free the Certified Agreement and the Awards of unnecessary red tape or constraints on department’s capacity to manage and best direct their resources to improve services to the public of Queensland.”

      Please stow your tray and return your seat to the upright position, this could be a rough landing.

      • OMG- if that is what they are seeking to do- well that might cause a bit of departures all by itself! problem is, it will be the smart ones who leave.

        And while people are complaining about the back office staff- what do you think will happen when the “back office staff” in charge of ordering hospital supplies are made redundant? That nurses will take on more responsiblity?! Or what happens when the people who process all of the paperwork are let go.
        Yes, the QLD public service (and government in general) is overstaffed. But undirected cutting will not solve the problem. Targeted and real performance management might.

  7. Hard to see how an insider doesn’t have a vested interest…

    Wasn’t the Premier’s husband in a cushy job on this same payroll FFS. What is clear is that regardless of which mob of idiots are in power the taxpayers can’t leave them in for too long before they start feathering the nest.

    • This one has already given a few of his mates cushy jobs too and he’s only been in a few months. It’s a pity we can’t get rid of the lot of them but unfortunately people will tolerate a lot of corruption from the party they favour. And that blind loyalty results in them getting exploited time and time again and they never seem to learn from it.

  8. The Patrician

    “Well that is unless you are a MacroBusiness reader, in which case you would probably have a fair idea that the Bligh Treasury never really came to terms with the “new normal”

    Who or what do Qld and Vic Govts use for their stamp duty receipt forecasting?

    Peter Fraser?

  9. Austerity is a paradox – politicians normally give people what they want. It would appear people want and don’t want austerity.

    Quimby “i’m sick of you people you’re just a bunch of fickle mushheads”
    Mob: “He’s right! Give us hell Quimby”

  10. IMO it would have been better that Costello had no involvement in this. But one thing that jumped out was the projection of income based on housing going up 14% yoy by the previous government, and I assume that came from the current treasury. That speaks volumes.

    Even under the previous government in VIC PS numbers didn’t go up like that, and in the case of teachers it was/is rare to be able to get a full time position.

    • One other big issue today was the TAS health system bail out at around 300M I think. Another state is trouble, as is VIC.

      • Tassie is hell bent on destroying it’s economy in favour of some kind of green nirvana.

        No wonder they cannot fund their own health needs.

        • Pilbara will fund ’em champ, all taken care off. GST distribution is a wonderful thing.

          You know they are entitled to it!!

          No northern city in this generation or the next.
          Unless the indons want to have a go.
          Mebbe we should ask ’em.

  11. I nominate QLD for the Dumb State Award.
    As far as I know, no-one has yet documented how QLD, the State with 2nd largest amount of mineral wealth in ground in Aus, managed to go bust in a mining boom.
    I have a theory in 2 parts:
    1. naive policy makers and the States guardians were sold a pup by cunning ‘Advisors’. This resulted in the siphoning off of a large chunk of Treasury towards exotic investment vehicles that went ka-boom in GFC1. This forced asset sales, also a recommendation by the mysterious ‘advisors’.
    2. over-zealous population growth with its attendant infrastructure & service spend has caused about extra +30% in costs.

    • Jon, Qld went broke because the recently departed Govt overspent enormously (on all manner of it’s pet policies and green type projects) and were entirely incompetant financial managers.

      The Qld Public Service is bloated with thousands of overpaid positions created and granted to politically like minded occupants.

      They simply became a victim of Thatcher’s formula : They ran out of other peoples money to spend.

    • +1

      selling dodgy infrastructure funding structures to politicians is like shooting fish in a barrel.

    • Jumping jack flash

      Mining boom? Absolutely irrelevant when most of the money doesn’t stay in the country.

      QLD is living proof. Would be interesting to see how many S.E. Asian-built TVs and other useless and worthless imported paraphenalia are in each QLDers house – everything bought with debt money sourced from overseas banks.

      And our great leaders will keep playing the game and saying it is all ok, boomtime is here to stay, until that exact moment when it becomes so obvious as to what has actually happened, they can’t get away with it any more.

  12. MsSolarFelineAU

    Damn! And I thought my home-state was going kinda a-okay (sarcasm ON). Why did I move back home? Oh, that’s right – free accommodation and Mum gets free care. Just have to set my client-base up again. Hmmm…And, politicians only get into politics, just to make $$. Feathering their own nest, and butting into business people/entrepreneur’s practices’, is part of their pathology.
    We’re on our own, kids!! :-(( GSM, I like how you think!