MYFER: Disappointing; AAA credit rating nowhere in sight
The Chamber of Commerce and Industry Queensland (CCIQ) is disappointed with the Mid Year Financial and Economic Report (MYFER) released today by the Palaszczuk Government.
The budget update reveals ballooning spending, declining revenues, and rising government debt levels which will no doubt raise concerns for businesses across Queensland.
CCIQ acknowledges that the State Government has limited capacity to influence above the line revenue such as falling resource royalties’, stamp duties and payroll taxes.
Nevertheless, the Palaszczuk Government is in the driver’s seat when it comes to expenditure reduction and debt management strategies to chart a course back to Queensland attaining its AAA credit rating.
CCIQ notes that expenses have blown out to 3.2% in 2015-16 compared to 2014-15, much higher than the 2.8% promised by the State government at the May Budget.
This will add to Queensland’s total debt burden projected to rise to $80 billion by 2018-19 from around $74 billion at present.
The government is talking about fiscal responsibility but has instead resorted to old habits, pulling out the State’s credit card to pay for new spending measures when revenues are declining.
At a time when Queenslanders are tightening their belts, this is clearly out of step with community expectations.
CCIQ is concerned that Queensland’s public sector debt will continue to rise over the forward estimates.
The Palaszczuk has no substantive plan to deal with the long term structural challenges of expenditure outstripping revenue.
MYFER showed today that general government debt is forecast to rise from $37.9 billion this financial year to almost $41 billion in 2018-19.
Higher government debt levels mean higher interest expenses which means fewer funds for schools and hospitals and leaves no room for the government to fund a reduction in inefficient state taxes such as payroll tax.
Shifting debt between credit cards
The Treasurer’s $1 billion dollar debt reduction plan is to re-gear nominated government owned corporations with debt that was previously on the balance sheet of the government.
In its current form, this is a cosmetic solution to a structural problem with the State’s finances.
Today, the Treasurer has essentially shifted debt from one credit card to another to avoid it being recorded on the government’s books. This is creative accounting which Queensland business and the broader community will see through.
There may also be unintended consequences as the nominated government owned corporations will inevitably pass on higher debt repayments to consumers raising essential service costs for businesses and retail users alike.
Away from a credible path back to AAA credit rating
The 2015-16 MYFER will not be looked upon favourably by the ratings agencies and the business community.
This may result in a negative watch being placed on Queensland’s credit worthiness raising the cost of borrowing and interest repayments for the State further putting pressure on the budget.
CCIQ is disappointed by the Palaszczuk government’s clear decision to move away from a credible path back to AAA credit rating.
CCIQ notes that slower growth from Queensland’s largest trading partners such as China and Japan has resulted in a dramatic write down in royalty revenue for Queensland which is consistent with the Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO), showing weaker resource sector profitability hurting government revenues.
The revision downwards for Gross State Product (GSP) andsteady employment growth in 2015-16 and 2016-17 came as no surprise.
Despite the write-down in GSP, CCIQ is pleased to see the Queensland economy forecast to grow at the strongest rate in Australia with 4% in 2015-16 driven by the strength of LNG exports.
While these numbers are promising, CCIQ will be looking to ensure that the economic boom from LNG extends to the broader business community, and that the government continues to progress with economic diversification policies such as Advance Queensland.
Transition to new sources of growth
Adjusting to the structural changes currently underway in Queensland’s economy, most notably shifts from resource investment led growth in to new sources of growth, requires strong leadership from the Palaszczuk government.
The results today highlights the need for the government to double down on simultaneously getting spending under control, paying down state debt and promoting a clear economic platform for future growth in Queensland.
CCIQ calls on the Palaszczuk Government to focus on growth and policies to get Queensland firing again whilst finding efficiencies in expenditure.
The government is clearly on notice from business, the community and ratings agencies.