Queensland Budget 2020-21 has been saved
Queensland Budget 2020-21
Less bang, more buck
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As 2020 comes to an end, Queensland has handed down its full post-election and post-peak pandemic budget – rounding out the budget cycle, hot on the heels of New South Wales and Victoria.
Fast Facts on the budget:
- Debt overhang: The budget implies that the impacts of the pandemic will linger – with net debt peaking sometime beyond the forward estimates. This means that 2021 needs some heavy policy lifting to begin the task of structural economic repair and balance sheet sustainability.
- Revenue tanks: Across the forward estimates to 2022-23, total revenue is expected to be $12.3 billion lower than forecast at the 2019-20 Mid-Year Fiscal and Economic Review. Revenue took a hit in the pandemic and given global economic uncertainty, may struggle to rebound.
- Unemployment is stubborn: Unemployment remains stubbornly high above 6% for the entire forward estimates period. While growth recovers, the impacts of the pandemic structurally hit the labour market.
Across the world and Australia, budgets have not been immune from the effects of COVID-19. Governments have rightly raced to cushion the impact of the pandemic, and budgets have equally raced into deficit as the debt and revenue equation flipped.
As expected, and quite sensibly, the Queensland Budget 2020-21 was a bit less bang and more buck:
- Less bang: The focus of the post-election and pre-Christmas budget was reasonably on presenting the Government’s election commitments in the budget context and providing forward estimates with fresh economic forecasts. This is the first detailed look at the information government will be making their decisions against going into 2021. And while the budget this side of Christmas was never the document to reform the economic agenda, it does set the baseline for recovery.
- More buck: The debt was always going to be higher and this is not news for those paying close attention to pandemic economics. The deficit sits around $8.7 billion for 2020-21 and this is the projected peak. And while it is tempting to focus on the $130 billion gross debt level for the non-financial public sector (an accounting name for what is basically the General Government debt and the debt of the Government Owned Corporations combined) – the real story is it has never, never, been cheaper to service this debt and borrow to rebuild (see chart below).
So let’s settle the post-pandemic debt question: Economies don’t operate in isolation. At the same time as we see a rise in expenditure and a fall in revenues, the Reserve Bank – and most central banks around the world – have slashed interest rates and pumped money into the economy. In Australia, the official cash rate has been cut from 0.75% at the start of the year to just 0.1% now – the lowest on record and they are going to keep it there for some time.
Source: Various state budget papers
That’s drastically reduced the cost of borrowing for governments – firstly to the new debt that governments take on, but also to existing debt as it rolls over to new terms. The repayment burden of debt is expected to be roughly in line with where it has been over the last decade for most states – but Queensland is seeing a decline in the servicing cost of the increased debt.
All said and done, addressing reform to deal with the structural imbalances in the economy will mean that the Queensland economy and budget won’t be caught flat footed. This is the challenge for 2021.
So, while there is more buck this budget – if the debt can be used for good and the balance sheet put to work to reduce unemployment, make economic growth resilient and keep Queensland competitive, Queensland is in good shape in the long-term.
And as for the usual suspects of health, education and infrastructure funding? They all make a guest appearance in line with the Unite and Recover plan and the Government’s election commitments. But one of the biggest stars in town is rightly health:
- Investing in frontline health services: not just ensuring an appropriately resourced response to the immediate challenges of the pandemic, but there is significant growth in frontline health workforce (including ambulance). This investment will help the health system recover from the pandemic backlog, but also assist with the ongoing growth in demand.
- Focus on palliative care: There is $171 million for a new palliative care strategy. This is the first time, in a long time, that there is funding for a dedicated palliative care strategy. This is an important initiative for an ageing population and recognises the public discussion occurring on how to allow people to die with dignity.
- No surprises here… health infrastructure, infrastructure and infrastructure: The infrastructure announcements include an expansion of hospital capacity as well as innovative new satellite models aimed at proving a foundation for future innovation in care delivery. It is particularly good to see a significant focus on the regions and remote areas.
Looking ahead to Queensland’s economic revival
This budget was essentially housekeeping. The real work must begin in next year’s budget because the world is not standing still, and the time is right to reset the economic agenda for Queensland. Outlined last week in Rebuilding Queensland: A Roadmap for Economic Revival Queensland should prioritise:
- Being Confidently Queensland – COVID-19 has brought about a crisis in both consumer and business confidence. The next phase of Queensland’s future needs to prioritise rebuilding confidence.
- Use debt for good – with the cost of borrowing at an all-time low, now is the time for government and business alike to use debt to invest in growth-delivering priorities.
- Create local jobs – the economic fallout from COVID-19 has hit hard for many workers and many regions, exposing existing vulnerabilities in regional labour markets. This necessitates a solution that is specifically tailored to the local context – the local industry, skills base, economic assets, regionality, climate, vulnerabilities, etc.
- Cut sector deals – to strategically position Queensland to ride the next wave of global growth, sector deals will need to be cut between government and business. Rather than tinkering at the margin, sector deals prioritise scale and co-ordination of investment to fast track economic growth and employment.
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- Queensland Business Outlook February 2020
- Queensland Business Outlook June 2019 - Budget editon
- Queensland Business Outlook December 2018
- Queensland Business Outlook June 2018 - Budget editon
- Queensland Business Outlook February 2018 - China special editon
- Queensland Business Outlook September 2017
- Queensland Business Outlook July 2017 - Budget edition
- Queensland Business Outlook May 2017