It’s budget day for Queensland and the much anticipated speech from the state Treasurer has just been delivered. In the lead up to the budget there has been avid speculation from the Queensland media that this would be a ‘hack and slash’ event:
The Queensland treasurer says his first budget will outline reform and growth strategies that will return to the state to economic prosperity. Tim Nicholls will at 2.30pm today detail the full extent of public sector job losses and spending cuts, in what the government has described as a tough, once-in-a-generation budget.
“While we do have the job of fiscal repair, we also have the job of charting the future prosperity of the state of Queensland,” he told ABC radio.
“I’ll be outlining how we’ll be doing some of that in the budget.”
Mr Nicholls said restoring the state’s AAA credit rating was a priority, but it wouldn’t happen quickly.
Queensland’s debt level was currently trending at about 125 per cent of revenue and needed to drop to between 100 and 110 per cent for the credit rating to change, he said.
“We have to go quite hard to get a 15 per cent reduction,” Mr Nicholls said.
The incoming expectations of the budget where an increase in mining royalties and a significant reduction in the size and budget of the public service, those expectations appear to have been met. A decrease of 14,0o0 positions was announced including the removal of 3400 temporary contract workers and vacant positions. The Treasurer claimed this would save $3.7bn over the forward estimates over 3 years.
The 10,600 redundancies in full time positions are expected to cost the state $800 million this FY and, as you can see from the breakdown below, concentrate on health, housing and public works:
- Aboriginal and Torres Strait Island and Multicultural Affairs: 15
- Agriculture, Fisheries and Forestry: 450
- Communities, Child Safety and Disability Services: 385
- Community Safety: 345
- Education, Training and Employment: 405
- Energy and Water Supply: 135
- Environment and Heritage Protection: 220
- Health: 4140
- Housing and Public Works: 1425
- Justice and Attorney-General: 510
- Local Government: 15
- National Parks, Recreation, Sport and Racing: 130
- Natural Resources and Mines: 360
- Police: 215
- Premier and Cabinet: 45
- Science, Information Technology, Innovation and the Arts: 110
- State Development, Infrastructure and Planning: 145
- Tourism, Major Events, Small Business and the Commonwealth Games: 15
- Transport and Main Roads: 1450
- Treasury and Trade: 85
The major points mentioned in the budget are:
- Projected deficit of $10.678 billion in 2012-13 with plans to return to fiscal surplus of $652m by 2014-15
- $800 million for redundancy payments
- 14,000 full time equivalent jobs cut from public service
- Increase in coal royalty rates to generate an extra $1.6 billion over four years
- Unemployment tipped to rise above 6 per cent during financial year
- Minimum payroll tax threshold lifted
- $80 water rebate for southeast Queensland households
- $7000 first home buyer grant scrapped and replaced with $15,000 first home construction grant
- Top stamp duty threshold to increase to $1m but rate to also rise to 5.75 per cent
- $200m over two years for state school maintenance
- $495 million “Royalties to Regions” program to help fund infrastructure in regional communities
- $146.9 million over four years for 1,100 new police
- $26m over four years for extra respite services for people with disabilities aged between 16 and 25 and their carers
- $15 million trial to help elderly parents struggling to look after children with disabilities
- $97.7m to boost the Patient Travel Subsidy Scheme
- $12m extra to fund 40,000 public specialist outpatient services
- $20 million allocated to encourage more tourists to Queensland
- $20.9 million to prepare for the Commonwealth Games
- $42 million towards the creation of an Institute of Tropical Health and Medicine at James Cook University
- More than 1000 additional public housing rental units to be produced
- $4.8 million for research to develop Queensland as the food bowl of Asia
- Waste levy abolished
- Public transport costs frozen for 3 years.
The hot point for business, of course, will be the other big measure. From the AFR
Coal royalty rates will increase for the first time since 2008. The rate for coal over $100 a tonne will increase from 10 per cent to 12.5 per cent. The royalty rate for coal valued at less than $100 a tonne will remain at 7 per cent.
Once coal prices rise above $150 a tonne, the rate will increase to 15 per cent.
The tax slug on miners is expected to raise an extra $1.6 billion over four years.
That sounds rather like a resource super profits tax to me, without bothering with the clever offsets to make it investment neutral industry.
Although the speech had obvious moments of ideology, I thought it was a fair effort. But as I said again last week, coal is under pressure , the housing market remains in the doldrums and private sector credit growth is at 35 year lows. Although the Treasurer did mention these constraints in his delivery I’m not sure they’ve been correctly taken into account in terms of expected revenues.
I agree with the Moody’s assessment of the budget which sounds rather ominous for the rating:
Sydney, September 11, 2012 — Moody’s Investors Service notes that Queensland’s budget for the current fiscal year of 2012/13, published today, projects a further deterioration in its financial performance, but also estimates that the Australian state will return to a small surplus position by 2014/15 due to a new program of budgetary redress.
Preliminary results for 2011/12, last fiscal year, indicate that the general government sector deficit is estimated as a still large, but smaller-than-forecast AUD5.6 billion, or equal to 12.3% of revenues, and down from the higher budgeted level of 19.5%.
However, Moody’s notes that this improvement largely reflected the advance of the Commonwealth government’s provision of disaster relief for flooding to the state ahead of schedule to the 2011/12 year, while related capital expenditures will occur in 2012/13.
As a result of this change in timing, the 2012/13 budget forecasts a much larger deficit amounting to a considerable 25.5% of revenues. But, after the exclusion of the impact of the national disaster relief grants and the cost of rebuilding state infrastructure, Queensland estimates that its deficit position will be similar in both years, with the shortfall amounting to 14.9% of revenue in 2012/13 and 14.0% in 2011/12.
Moody’s notes that these large budget gaps are due to less robust growth in conveyancing duties and GST-back Commonwealth grants, while spending has not been commensurately adjusted. The state’s elevated spending base reflects efforts to enhance health, education and police services, as well as increases in public sector wages. In addition, capital expenditures remain at very high levels compared to historical trends.
For the medium term, a new administration is implementing a budgetary redress plan that is projected to narrow the deficit and bring the state into a small surplus position by 2014/15. Measures to cut expenditure growth are focused largely on a reduction of about 14,000 state positions and a cap on total compensation increases of 3% annually over the next four years. Moody’s also notes that Queensland’s 2.5% wage policy remains in place and its efficacy is likely to improve thanks to legislative amendments that require arbitrators to consider the state’s financial position when determining wage adjustments.
Revenue measures primarily include an increase in the coal royalty and other adjustments, such as a rise in conveyancing duty rates for higher valued properties. Moody’s noted, however, that these measures have been dampened, in part, by some tax relief measures.
Moody’s believes that the state faces considerable challenges in achieving it budgetary targets, including the reduction of annual expenditure growth to a very low 2.5% over the next four years, and down from an elevated 9.9% over the past four years.