Where's the come-back plan?

Dear member,

I put this media release out earlier today. It is about the first piece of research that we have produced during this state election.

It is important that the election be fought on the basis of the facts. So we were disappointed the Treasurer broke with normal practice in his September 7 update on the budget  and only up-dated figures for one year rather than the whole four years.

So, with the generous support of one of our members we commissioned Adept Economics to model the extra three years that were missing. The results are disturbing with the indicators of our financial health deteriorating alarmingly including  general government debt increasing by up to 134%, and total gross debt up as much as $47 billion to $118 billion in the same time period.

Here's the release.  

Modelling by Adept Economics, commissioned by Queensland-based think tank, the Australian Institute for Progress (AIP), fills in the gaps left by the Treasurer's budget review of September 7.

Download the full report from here.

It projects general government debt increasing by up to 134% between June 2020 and June 2023, and total gross debt up as much as $47 billion to $118 billion in the same time period.

Lead Author Gene Tunny said the Treasurer's statement departed from standard practice by only forecasting one-year ahead instead of containing full forward estimates.

"No doubt the government realises how bad the outlook for the budget is and it has decided it is better not to publish these estimates in the lead up to an election.

"The government claims that they couldn't produce longer forecasts because of the current uncertainty, but it is a principal of budget forecasting that you forecast more frequently, not less, when times are uncertain."

AIP Executive Director Graham Young said that it was common for governments to want to hide the real extent of financial problems, often aided and abetted by their oppositions.

"COVID, with the damage to lives and livelihoods, is the worst crisis most of us will hopefully see in our lifetimes. Recovery will be difficult, but there is also a sense of urgency which can help us to rebuild bigger and better.

"We can't do that without absolute honesty and integrity. That's what this report is about."

Key findings of the report are that over the period from 2019/20 to 2022/23:

* Total Gross Debt in the Non-financial Public Sector increases from $71 billion to between $113 and $118 billion (59%-66%); and General Government debt from $32 billion to $70-$75 billion (124%-134%)

* Growth in net debt in the General Government sector is estimated to almost triple from $14.2 billion in 2019-20 to over $40 billion

* An operating deficit of $18 billion, and a total deficit (including infrastructure spending) of $38 billion.

* Annual interest payments increase by approximately $400 million by end of period, with potential for a further $1 billion if interest rates normalise from current rates of 1-1.5% to 3-4%.

* Queensland's credit rating is potentially at risk

Mr Young said that the $400 million in interest was productive infrastructure investment foregone.

"It could fund a Coomera Connector every two years, an Eight Mile Plains to Daisy Hill upgrade every year, or 7 new schools, for instance."

Mr Tunny said it was vital that financial governance be improved.

"Austerity is not appropriate at the moment, but when the economic situation returns to trend we recommend the government adopt a number of rules which will overtime reduce excess borrowings and return the budget to good health, as well as providing head room for the next crisis.

"These rules are:

* tying nominal expenditure growth constraint to the long-run growth in nominal GSP (as a maximum ceiling) and targeting the fiscal balance in the General Government Sector;

* adopting an efficiency or productivity factor of, say, 0.5 percentage points to this ceiling to drive continual improvement in public sector service delivery and value for money such that the effective nominal expenditure growth target is 6% per year;

* considering "no regrets" asset sales or leases, which would release funds that it could use to pay down debt in the future; and

* requiring all new infrastructure investment in the General Government Sector (such as for roads and hospitals) to be funded out of recurrent revenue on average over the economic cycle.

Mr Tunny also expressed concern at the governance processes around infrastructure projects.

"Poor project selection can actually destroy state wealth, rather than growing it. In this respect it is disappointing to see Build Queensland being reabsorbed by Queensland Treasury.

"Building Queensland was a 2015 State Election commitment of the current Government's designed to demonstrate a commitment to transparency, independence, objectivity, and rigour."

For further information contact Graham Young on 0411 104 801 or graham.young@aip.asn.au, or Gene Tunny on 0409 727 635 or gene.tunny@adepteconomics.com.au.