When it comes to analysing a state budget, there are two key variables to look for. What’s happening to employee expenses and what’s happening to government debt.
On both scores, the Queensland government’s mark is a fail. In 2015-16, employee expenses grew a massive 7.3 per cent. In the next financial year, employee numbers will increase 2.4 per cent or just over 5000 and the wage bill will increase 4.8 per cent. But expect another blowout in employee expenses like this year.
When it comes to government debt, Curtis Pitt performs a sleight of hand by raiding the superannuation fund of public sector workers and directing some of the monies to paying down gross debt, by close to $2 billion. But here’s the thing: it will do nothing to alter the net debt position of the state, because the value of the super fund is included in this figure. This is the reason why Queensland has the highest gross debt per capita of all the states, but net debt per capita that puts the state in the middle of the pack. (Queensland is the only state that has had a policy of fully funding its super liabilities.) It’s a classic case of giving with one hand and taking with the other.
There are very real dangers in raiding the super fund, particularly as it comes on top of the decision last year by Pitt to suspend contributions for at least five years. The issue with actuarial assessments that demonstrate the scheme is overfunded is their sensitivity to small changes in key variables. A surplus can quickly disappear as these variables change.
The bottom line is this: resorting to fancy financial accounting, raiding the super fund and getting government-owned corporations to load up on debt (last year’s trick) won’t resolve the massive financial black hole that is the key feature of Queensland’s public finances.
And, by the way, forecasting a growth rate of 4 per cent for the Queensland economy next financial year is completely fanciful.
The day of reckoning will come and, it is not far away. Were the federal government to lose its AAA rating, Queensland would very quickly be marked down a further notch or two. Note Queensland was the first to lose its AAA rating after successive Labor governments racked up massive increases in debt and ramped up the size of the public service.
Rather than face the obvious facts that asset sales are required to reduce the excessive level of government debt, and that public sector employee expenses must be seriously constrained, the government would prefer to take a series of short-run decisions that will inevitably end in tears. This year’s budget was a classic missed opportunity for Pitt. Last week, he leaked the write-down in revenue caused by the parlous state of the mining industry. Everyone knows that state debt is way too high.
Better to come clean with the voters. Tell them the number of public servants cannot be sustained. Tell them there are a number of government-owned corporations that barely return the cost of capital, but could be sold at good prices to reduce government debt.
You never know. Good policy could turn out to be good politics. After all, that is what the master, Paul Keating, believed.
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