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Queensland’s boring budget

June 3, 2014

NOTE: This article was writing at the request of The Conversation, where it was first published.

With the release of their plan to sell and lease some assets after the next election, the state government has shifted attention away from their budget. Though in truth, it would have been quite easy to distract people from this budget, because there is nothing new.

This is a boring budget.

We already knew that the ever-elusive budget surplus had disappeared. Two years ago I commented in The Conversation that: “The forecast for a fiscal surplus in 2014/15 is nice, but it is hard to take long-term budget predictions too seriously” and also that “it is easy to predict future austerity and surpluses, but it is harder to actually make it happen”. Time has justified that skepticism. The government’s original estimate for 2014/15 was a $0.7 billion surplus, but they are now expecting a $2.3 billion deficit.

The government has claimed that the deterioration in the budget was caused by lower than expected revenue, but another reason is that the state government introduced over $1 billion of new spending measures, and they allowed public service wage costs to rise by 3.8%. While the Newman government increases spending more slowly than the previous government, the spending is still going up.

Of course, disappearing surpluses are nothing new. Politicians are torn between wanting to give money to demanding voters, and showing constraint to balance the budget. These dual incentives are often “solved” by handing out money today and promising to be frugal later. The federal government has also suffered from disappearing surpluses in recent years. In 2011 the federal government estimated future surpluses of $3.5bn (2012/13), $3.7bn (2013/14) and $5.8bn (2014/15). Compare that with the most recent estimates released last month of -$18.8bn (2012/13), -$49.9bn (2013/14) and -$29.8bn (2014/15).

In this context, the government’s forecast of a $0.9 billion surplus in 2015/16 should be taken with a few grains of salt.

This budget was boring because the government wants to avoid making any tough cuts, but they still hope to achieve their 2015/16 surplus. While the lack of reform will disappoint economic liberals and the lack of extra spending will disappoint special interest groups, the value of this budget rests on whether the government actually succeeds in balancing the budget. If the government can navigate the next year (including an election) and get to the 2015 budget with their wafer-thin surplus intact, then history will show that this budget was appropriate.

But that is a big “if”.

The problem of debt and deficits is a slow burning issue. Good macroeconomic management means having a balanced budget over the business cycle, which requires the government to have budget surpluses when economic growth is normal so that they are able to run budget deficits when the economy contracts. Given that economic growth in Queensland remains healthy (and above the Australian average) then we should already be back in surplus. The need for a surplus is made more necessary by the fact that Queensland already has high levels of government debt, and that we need to be preparing now for future budget pressures caused by an aging population.

Good financial management demands that there are no more “disappearing surpluses”. Budget promises notwithstanding, that is something that we won’t know until next year.

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