Queenslanders need to start paying off their debts

Queensland has a serious public debt problem the next state government must confront.

The third largest state economy after NSW and Victoria, Queensland has the highest public debt in the commonwealth, predicted to rise to $81 billion by 2020-21, more than $16,000 per Queenslander.

The 2009 downgrade of the state's AAA credit rating by ratings agencies Standard and Poor's and Moody's under the Bligh Labor government stemmed from deteriorating budget deficits due to poorly controlled spending on items such as the $9bn "water grid", as well as ill-advised pump priming during the global financial crisis.

The credit rating downgrade added an interest risk premium payable on Queensland debt, costing the state at least another $100 million a year, and this risk premium will rise further if ­fin­an­cial markets deem Queensland's present AA rating ­unjustified.

Total public debt interest of about $1.7bn annually, equivalent to funding a major new hospital every year, will continue to rise on today's budget settings. As government debt across the federation is owed mostly to foreigners, this also represents a drain on the state and national economy, subtracting directly from national income. Barring a Venezuela-style default, the only options for reducing state public debt and its servicing costs are spending restraint, higher taxes or the sale or leasing of state government assets.

The Queensland government provides more than $5bn a year in industry assistance across a range of services, such as construction, electricity, gas and water, agriculture, fisheries, forestry, manufacturing, tourism and mining sectors. This is in addition to industry assistance provided by the federal government to many of these industries, notably tourism.

Why federal and state governments are incapable of addressing the huge overlap in spending programs such as this, as well as in education, health and social welfare, remains a mystery.

In 2015 the Queensland Competition Authority identified 112 measures providing more than $25bn in state government industry assistance from 2013 to 2018, including about $6bn in budget outlays, $17bn in tax concessions and the rest as undervalued assets and services. This equates to more than $1000 per Queenslander a year. Considerable scope therefore exists for pruning industry assistance as a priority.

According to recent Australian Bureau of Statistics data, as David Uren recently reported in this newspaper, public service numbers in Queensland in the past two years have risen by more than 8 per cent and the salary bill has risen more than 14 per cent to $25.5bn. This wages bill is only 4 per cent less than Victoria's, despite Victoria having a population 20 per cent larger. The average salary for Queensland's 322,000 public servants is also significantly higher than in NSW and Victoria. This suggests a need to increase efficiencies in the public service to meet the benchmarks set by the most efficient state governments.

Then there's the host of other spending schemes, such as the First Home Owners' Grant scheme (costing $30m). Though directed to home buyers, economic theory suggests the value of such grants is largely capitalised into the sale price of properties, to the benefit of sellers, not buyers.

On the revenue side, the state could conceivably reintroduce income taxes, ceded to the federal government during World War II, or apply a one-off deficit levy on all Queensland ratepayers, as implemented by the Kennett government in Victoria in the early 1990s. Or it could increase land taxes permanently.

Revenue measures alone are unlikely to reduce the stock of state debt to a more sustainable level however, and are the least attractive budget repair option in light of Queensland's already poor tax competitiveness relative to major Asian trading partners.