Two articles have emerged today outlining the acute pressures facing state government Budgets as they struggle with rising debt loads and the threat of credit ratings downgrades.
The first, from The Australian, outlines how Queensland’s Newman Government is looking to sell-off public assets in order to pay down debt, which is larger than New South Wales and Victoria’s combined:
A MASSIVE privatisation of Queensland’s power and port assets is being set up to address the state’s enormous debt pile…
Queensland Treasurer Tim Nicholls said yesterday the government had commissioned scoping studies that would examine “options for divestment” for CS Energy and Stanwell, which operate several power stations around the state, as well as the industrial ports of Gladstone and Townsville…
Mr Nicholls said that while the government had gone to the last election on a platform of no privatisation, the state’s spiralling debt meant that the government had to consider all options to cut back debt.
He released figures showing that Queensland’s debt was about $80bn with interest payments topping $4bn a year.
Debt on a per capita basis was $14,962, while the average of other states was $8360.
The Queensland government is also facing falling revenues, with next week’s mid-year economic review expected to show that mining royalties were expected to be $324 million lower than originally forecast while general taxation revenue will also be revised down by $205m.
As argued previously, selling-off public assets does not necessarily benefit taxpayers – at least in the longer-term. While the Government receives funds up-front, it loses the ongoing cash flow (dividend stream) from the assets – in effect substituting a future income stream for a smaller lump-sum. Whether such asset sales are, therefore, beneficial depends on whether the upfront funds received by the Government outweighs the expected net present value of future dividends. If not, then the sale is likely to be detrimental to long-term budget finances.
The New South Wales Government has also signaled tough times ahead, predicting lower economic growth, rising unemployment, and higher debt:
The half-yearly budget update released on Thursday predicts the jobless rate will hit 6.25 per cent next financial year, well up on the previous forecast of 5.5. That could mean about 20,000 more unemployed workers than there are now…
Mr Baird blamed the weaker-than-expected economy for a deterioration in the budget position.
Even though the hot property market in Sydney delivered a stamp duty windfall, the budget result for 2013-14 is forecast to be $656 million weaker than expected in June…
Only seven weeks ago ratings agency Standard & Poor’s warned that slow revenue growth and future borrowings needed to fund the government’s infrastructure program could put the state’s AAA credit rating at risk. But Mr Baird said maintaining the premium credit rating was imperative.
It’s a theme that is likely to be played-out across Australia and the broader economy weakens.
