Seriously, who would want to be a state government right now? After a decade of strong growth prior to the onset of the Global Financial Crisis (GFC), state revenues are drying-up, making those in power look like poor financial managers and creating anger amongst the electorate as the states make cuts to expenditure and jobs in an attempt to shore-up their finances and protect their credit ratings.
Two key areas where state revenues have taken a hit are stamp duties and GST receipts. After peaking nationally at $14.3 billion in 2007-08, stamp duty receipts slumped by -20% to $11.5 billion as at 2011-12 (see next chart).
It’s a similar story when it comes to GST receipts, which are supposed to be a growth tax for the states. According to Commsec, GST revenues have fallen by -0.7% over the past year and are around -$5 billion below levels that would have existed had the pre-GFC trend in GST receipts held (see below chart).
The mining states are also under pressure from falling mining royalties, which are applied to iron ore and coal exports. Back in September it was reported that Western Australia was facing a -$1.2 billion cut to budget revenues from falling iron ore prices. Similarly, Queensland was reportedly facing a -$500 million revenue shortfall as the coal price declines; although the announced increase in coal royalties will offset some of the fall. While the recent partial recovery in commodity prices should have alleviated the situation somewhat, both states are face lower revenues than were expected at budget time.
If the slump in revenues persists, the states will be being forced to make further cut backs to spending and employment in a bid to balance their budgets and maintain their credit ratings. Such moves would obviously place further downward pressure on the economy, exacerbating any downturn.
Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
