Review of 2014 QLD budget

Published in The Conversation on 4 June 2014 under the title “Queensland budget another case of the disappearing surplus”.

With the release of a plan to sell and lease $33 billion worth of assets after the next election, the state government has shifted attention away from its budget. Though in truth, it would have been quite easy to distract people from this budget, because there is nothing new.

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 scepticism. The government’s original estimate for 2014/15 was a A$0.7 billion surplus, but it is now expecting a A$2.3 billion deficit.

The government has blamed the deterioration in the budget on lower than expected revenue, but another reason is that the state government introduced over $1 billion of new spending measures, and also 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 its wafer-thin surplus intact, then history will show 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 it can run budget deficits when the economy contracts. 

Given that economic growth in Queensland remains healthy (and above the Australian average), the state 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 it needs to be preparing now for future budget pressures caused by an ageing 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.

Author: John Humphreys

Chief Economist at The Australian Taxpayers Alliance, Sessional Lecturer at the University of Queensland, and National President of the Liberal Democrats.

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