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:
- 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.
- 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.