Outline of Pre and Post Budget Public Debate

Privatisation of Public Assets

In advocating privatisation of several assets, the state government noted that: the global recession had seriously eroded its revenues; continued infrastructure investment and restoration of its AAA credit rating were desirable; its investment priorities (schools, hospitals, public transport and roads) were now different to what they had been; sales should yield $15bn (and save a further $12bn investment) while reducing income only $280m;  and various precautions would be taken to protect the public interest following such sales.

Other observers noted: the need to protect the public interest in privatisations; the high cost of fees to advisers in arranging such sales; the likely difficulty in selling assets for good prices under difficult circumstances; industry concerns about details of particular arrangements; and that selling the most profitable assets could be unwise. Unions and many ALP officials opposed the sales on principle - but their concerns were rejected.

Details about financial details of the proposed asset sales appeared sparse and unconvincing.

Details

Queensland's premier introduced proposals for privatisations as follows.

A plan exists to renew Queensland's finances and grow future investment. Global recession has led to $14bn loss in expected revenue over 4 years (1/3 of annual budget), and there has been $2bn decline in GST revenues. Government must continue to build infrastructure for growing population, and wishes to restore AAA credit rating. Government priorities change (eg regional airports were once developed, but now have been sold to private operators). There is a need to consider what government should do in future. Strategic asset sales are proposed to secure various functions without future public funding - to free government for funding of public infrastructure like schools, hospitals, public transport and roads. Renewing Queensland Plan involves sale over next 3-5 years of Queensland Motorways Ltd; Port of Brisbane; Forest Plantations Queensland; QR's coal business; and Abbott Point Coal Terminal. Sales should yield $15 and eliminate the need for $12bn capital spending over next 5 years. Annual revenue of $280m will be foregone, a 2% return. $12bn in avoided capital spending will save $750m pa interest. Government has chosen to run short term deficits as response to global recession. But in the long term tough structural changes are needed to restore a recurrent budget surplus. Queensland does not get value from $500m fuel subsidy scheme - so this will be ended [1]

In presenting its proposals the government further indicated that:

• the proposed asset sales were expected to yield $15bn and save $12bn in further spending. While $280m pa in revenues would be lost, $750m pa in further interest costs would be avoided and state debt would fall $15bn (Renewing Queensland: Future investment Plan);

• it was more important for government to improve public transport than provide rail networks for the private sector [1];

• tolls will be set by law to prevent price gouging after sale of Queensland Motorways [1]

• community will have continued access to forests despite government plan to sell off its forestry business. At one time it made sense for government to start a forestry industry - but no longer [1]

Other observers elaborated and / or expressed support for, or concern about, the proposals.

•  government has to sell existing assets to fund an unprecedented infrastructure program. [1];
• 'Renewing Qld plan' will see sale of $15bn in assets and saving of $12bn in future capital - Queensland motorways, QR's coal and freight arms, Port of Brisbane, Forest Plantations Queensland, Abbott Point Coal terminal.  [1]
• privatisation for the wrong reasons, or badly managed, can be against the public interest. What assets are appropriate for privatisation? Many businesses are now well run privately when they used to be government owned.  For all its problems Telstra has become a great Australian company. Australia pioneered the privatisation of airports - and this has been successful because of well-constructed legislation. Privatisation lifted the financial, political and administrative burden from government without sacrificing airports' economic / lifestyle contribution. Such sales have improved funding for Queensland's hospitals. The challenge facing government is to make sure that the correct checks and balances are in place to ensure that core services are not sacrificed to the gods of foreign private capital  [1]
• the GFC has been blamed for the proposed privatization of Queensland assets. However privatising of just the profitable bits of Queensland is foolish as this has long subsidised the unprofitable passenger services, Cross subsidies within infrastructure is the only option for public services to Queensland's dispersed population [1]
• approx $200m in fees are likely to be paid to advisers who arrange sale of government assets [1];
• Sale of Forestry Plantations Queensland is expected to yield $500m. [1]
• higher road tolls, higher prices and the millions to be paid to financial advisers will be ongoing problems [1]
• there was uncertainty within timber industry about the implications of sale of Queensland Plantations [1];
• mining industry believes that sale of rail haulage business and Abbott Point Coal Loader is fine in theory - but wants assurance that upgrades of these systems will not be put on the back burner [1]. Mining industry was assured that its interests would be considered in asset sales [1];
• state government will be selling assets at a bad time - as many infrastructure assets are being sold worldwide and there is a shortage of capital - creating a buyers market [1]
• selling off state assets is a brave and commendable move - but may come at an unfortunate time in the business cycle so prices may be limited. Other state governments seem to be headed towards similar auctions [1]. In Europe port and rail assets have been offered for sale for months, and in Australia private infrastructure assets have also been for sale. But there is a shortage of buyers [1]
• government will struggle to get $15bn for assets (QM $3bn, Port of Brisbane $3.5bn; FPQ $500m; QR's coal freight $7bn; Abbott point $1.9bn) because of GFC [1].
• Queensland's $7bn coal freight network and 2 Brisbane toll-roads are likely to be attractive to investors, but Port of Brisbane, Abbott Point Coal terminal and Forestry Plantations could struggle to find buyers. Gains: Motorways ($3bn + 1bn debt reduction); Port of Brisbane ($3.5bn +$900m); Plantations ($500m + $100m); Coal network $7bn + 7bn); Abbott Point ((1.9+3.5) [1]
• Brisbane toll roads (whose value is put at $4bn) might be easiest assets to sell because of their business model. There are about $20bn of other infrastructure assets on the market in Australia. QIC, Canadian Pension Plans and industry funds top the list of likely buyers [1]

There was vocal opposition to the proposal, mainly from within the ALP and union movement.

• ALP rules say that party was established for democratic socialization of industry. ALP 2008 specifically rejected privatisation of public hospitals, schools public enterprises or utilities (especially rail, ports, public hospitals, electricity and water [1] ;
• ALP president (Andrew Dettmer) suggested that short term solutions would create long term problems (eg giving mining companies complete control of regional economies)  ACTU president (Sharan Burrow) suggested that rail privatisation was never successful. [1];
• Queensland Council of Unions argued that privatization (eg of Commonwealth Bank and Telstra) had cost community.[1]

Moreover general opposition was expressed by: Rail Train and Bus Union secretary (Owen Doogan) Maritime Union spokesman (Mick Carr)  [1]; QCU secretary (Ron Monoghan) [1]

In response to such criticism, the government reportedly said that the sell-off was a done deal [1]

Information / speculation about the financial status of various assets proposed for sale was available, but neither comprehensive nor convincing.

• Queensland Motorways profit before tax, depreciation and interest was $110m - so a $3bn valuation would be 30 times earnings. Those prices are based on boom times data - but listed infrastructure assets have fallen 50% since then [1];
• Forestry Plantations Queensland's 2007-08 annual report revealed: sales $93.8m; $29.6 trading surplus; $13.4m dividend to Treasury; and ; capital investments $25.6m. The operating surplus (including increased value of plantations) $85.5m [1]. An examination of FPQ's annual report revealed very 'interesting' (but apparently standard) accounting practices (p29-30), ie (a) 'income' included assessed revaluation of growing plantations and (b) the results of trading operating (ie sales of timber) were not mentioned as income but simply recorded in a cash flow statement;
• Queensland Rail's annual report for 2007-08 suggested revenue of $3.5bn and EBITDA of $1.1bn [1];
• Macquarie Infrastructure sold its M7 stake for 24 times earnings before interest, taxes, depreciation and amortization - which suggests that Queensland's Motorways EBITDA of $27m would result in valuation of only $652m [1]
• QR's coal assets will yield $7bn and save $7bn in future spending.  However QR Coal returned hundreds of millions to budget [1]
•  Port of Brisbane (that returned $72m dividend to state government) could be sold for $4.4bn and save $900m further investment over 4 years.  [1]

Other Pre-Budget Expectations

In relation to the budget and Queensland's financial position generally observers noted in the lead up to the budget delivery that:

• the state's deficits appear structural, rather than merely cyclical. Government spending has been growing much faster than revenues. The public service has grown very rapidly (and was concerned about possible cuts). Borrowing costs will rise because of loss of AAA credit rating;
• economic growth is well down on expectations. Government would not comply with the desire of rating agencies for large spending cuts and tax rises - because of adverse economic impacts; 
• business wants: high infrastructure spending to keep unemployment low; a plan for fiscal recovery; payroll-tax relief; reduced red-tape; and investment to be maintained in area where assets were to be sold;
• ominously there was no 'good news' prior to budget release. Business and the community faced higher costs;
• government was acting contrary to core ALP principles in selling assets. Asset sales focused on those with business customers. More assets might be sold in future;
• state is looking to reform of federal financial system to boost revenues.

Details

• Queenslanders face substantial increases in living costs (ie electricity 36%; rates 18%; gas 40%). Including the effect of eliminating fuel subsidy, families might face increased costs of $1000 pa [1]
• Queensland's premier defied Labor orthodoxy by proposing the sale of state assets (hoping thereby to recover from the loss of the state's AAA credit rating) in preference to curtailing big-spending public works program (eg for hospitals, passenger rail systems, regional roads and social housing) [1]
• motorists will face $300 pa increase in fuel costs [1] ;
• government has focussed on selling assets that service commercial clients - except for Queensland Motorways whose tolls are tightly regulated [1]. Other state assets that could be sold later include: printing, car fleet management and IT businesses [1];
• these privatisations could be followed by more - including some of six big remaining ports  [1]
• the numbers in Queensland's public service have grown significantly over the past 5 years - (ie a 20% increase in the proportion of workers in public administration) and rumours are rife about culls in the numbers of temporary / contract positions [1];
• unions are concerned that up to 25% of public servants in temporary positions could be at risk as government seeks $280m savings [1]
• Government may trim contributions to public servants' superannuation in another cost cutting measure [1]
• in lead up to state budget there have been no 'good news' leaks - which is ominous. By 2011-12 total state debt is likely to reach $74bn (less proceeds of possible asset sales) - and a $1bn pa deficit is expected in coming years. There is nothing wrong with deficits incurred in making productive investments - but structural deficits are undesirable. Queensland's spending growth (10% last year) has far outstripped revenue growth (1% last year). Without drastic action on cost side, recurrent expenses will continue to exceed revenues - and this shortfall should not be met by selling assets. Cuts must be made in spending - given that tax increases have been ruled out [1]
• Queensland treasurer has called for reform of Australia's tax system through Henry tax review because of the inherent weakness of states' narrow tax bases [1];
• according to treasurer there will be little good news for community in budget and government does not intend doing what rating agencies want (ie massively increase taxes and cut the building programs) because this would be economically disastrous [1]
• Queensland's economic growth in 2008-09 is 0.5%, well below the 5.1% in 2007-08 and the 4.5% originally forecast for the current year [1]
• Business doesn't expect handouts from government but wants to see plan to restore AA credit rating, and give priority to economic / job growth so that business can defend markets / workforces. Payroll tax relief is a priority. CCIQ (Beatrice Booth) wants smaller, more flexible, efficient and skilled public service. Compliance costs need to be reduced.  QRC (Michael Roche) is concerned that criteria for asset sales is a reduction in governments infrastructure spending - as there is a need to ensure ongoing focus on upgrading rail lines and ports. Increased changes must also be used to streamline and increase efficiency. Macarthur Coal (Nicole Hollows) is concerned that asset sell of might replicate problems like those at Dalrymple Bay. ANZ (Russel Shields) emphasised the need to fund infrastructure spend and keep unemployment low. BOQ (David Liddy) called for tax-breaks and incentives for SMEs in order to promote economic recovery. Hutchinson Builders (Scott Hutchinson) expressed satisfaction with existing levels of spending [1] 
• Queensland faces problems because of loss of AAA credit rating. It will make semi-government borrowing more costly. Returning to that rating will take years. When revenues like those in 2007/08 will resume is unknown. Despite this, a large capital works program will be committed to boost growth. Business concerns that government will delay some projects appear realistic. Premier says downturn has forced state to divest assets it should have sold (as Victoria did) years ago. [1]

Fiscal Issues

In relation to the budget various observers drew attention to: confirmation of asset sales and elimination of petrol subsidy; new grants for first home owners; the temporary boost from federal stimulus spending; the need to reconsider the role of government because of increased demands for government services; high levels of infrastructure spending; increasing debts (mainly due to infrastructure spending because GFC has only limited impact) though totals would remain low by international standards; rapid past turn-around from large surpluses to deficits; expected deficits for 8 years; failure to mention worrying debt / GSP ratio; difficulties in recovering AAA credit rating; very rapid growth in past spending (rather than GFC) as the main cause of credit rating downgrade; continued low GST revenues due to high past revenues; government's search for federal guarantees of its debts; Treasurer's push for changes to federal financial arrangements; constraints on public service pay rises and on overall public spending; doubts that infrastructure cost increases could be blamed on rising construction costs; and the risk that conditions might deteriorate more than expected.

Details

• budget will be in deficit for 8 years. $18bn will be spent on infrastructure in 2009-10. Current deficit will be $574m rising to $4.1bn in 2011/12. Cuts to petrol subsidy and asset sales proceeded. Public service cuts did not. Grants will be given to first home buyers.  [1];
• Treasurer emphasises government infrastructure spending. But there has been a need to reconsider the role of government generally (and privatise some functions) in view of increased pressure on government to provide services [1].
• borrowings will rise from $57.7bn in 2009-10 to $85,5bn by 2012-13. $18bn on capital works will fall to $10bn in 2012-13 because peak spending (water grid and new hospitals) will phase down [1]
• GFC showed that Queensland's finances were built on loose sand. Ongoing deficits are expected. However the problem is not loss of revenue due to GFC - as 2009-10 revenues will be $37.2 bn (up from $35.9bn last year - with some help from federal stimulus). The problem is increased spending. At start of decade this grew 3% pa - but this increased to 12% pa eventually. General government sector will go into net debt in 2011-2012, while non-financial sector net debt will increase from $14bn in 2008-09 to $51bn in 2012-13. This led to downgrade of state credit rating. [1]
• Queensland has to rely on success of asset sales to reclaim credit rating lost when large long term budget deficits were announced last year. Standard and Poors indicated that nothing about budget suggested upgrading to AAA. Asset sales could reduce debt levels to 120% of revenue by 2013 - above the 100-110% level needed for rating to be re-assessed. Queensland faces $3.3bn pa fall in mining and property revenues [1]
• public service pay rises will be limited to 2.5% pa [1]
• staff expenses are rising much faster than 2.5% nominal wage cap. [1]
• Treasurer is proposing to cap government spending growth at 4.75% (down from 14.3% two years ago) [1];
• Budget did not mention debt / GSP ratio. [1]
• Opposition has criticised increased debt involved in Queensland's budget - though this will be partly offset by asset sales [1]  ;
• interest on general government borrowing would be 2.38% of general government revenue in 2009-10 rising to 5.69% in 2012-13. Including GOC the figures become 6.48% and 10% respectively [1]
• in all states net debt will rise from 3% of GDP to 12% by 2012-13 (about 1/3 due to GFC). These levels are low by international standards. Most debts will be covered by increased charges by GTEs [1];
• over 15 years ago a Treasurer noted that Queensland had no net debt (ie that financial assets exceeded liabilities. Now there is a $17.8bn excess, though this will now change (ie net debt will be $5.9bn in 2012-13). In 2008-09 borrowings are $44bn, but they will reach $85bn - though this should be reduced by asset sell-off and the $12 that won't need to be spent. The interest bill on borrowings next year will be $887m (ie 2.3% of revenue) - though this will be more than offset by income on investments. Even in 2012 interest will be only 5.6% of revenue - which will be very manageable.  Queensland's danger is that conditions might deteriorate more than expected. [1]
• Queensland goes from $4bn headline surplus to $4bn deficit in 8 years. GST revenue is based on past state revenues - so Queensland will still receive boom time (ie small) allocation though revenues have fallen. Treasurer argues that state's tax base is too narrow. [1]
• states are going into debts because of heavy infrastructure spending, not (as they claim) because of GFC. Queensland will lose $15bn revenue - only about 1/3 of $41bn increase in net debt to 2012-13. This investment reflects past under-investment and it is mere luck that it corresponded with recession. [1]
• Queensland will apply for Commonwealth guarantee of its debts. [1]
• Royalty revenues will fall from $3.4bn in 2009-09 (achieved after a surprise increase in rates) to $1.8bn in 2009-10 - a fall of 47% [1]
• Queensland's revenues are adversely affected by downturn in coal royalties and property taxes. GST revenue is falling because the total pool is reduced, and Queensland's share is cut because of the past strength of mining and property revenues. Budget expresses concern that processes do not provide Queensland with revenues needed by its rapid population growth [1];
• RACQ suggests that scrapping of fuel subsidy forces motorists to pay for lack of foresight [1];
• the position is currently improved by effect of Rudd Government's stimulus program and less-than-expected capital works bill - but this is only temporary.   [1];
• a quantity surveyor suggested that government's claim that $17bn blow-out in its 20 year infrastructure program could be blamed on rising costs appeared suspect, as costs were actually falling. Increasing the scope of projects was seen as a more likely explanation [1]

Economic Issues

In relation to Queensland's economy observers suggested  that: Queensland has suffered more than other states, and has only its economic structure and financial arrangements to blame; unemployment will rise; mining / property booms have ended; business investment could fall 25%; and business has concerns (eg with higher costs which can't be passed on;  and lack of payroll tax relief / strategy for fiscal recovery). However on a positive note it was suggested that: the budget deficits would result in less economic contraction and unemployment; Queensland's performance (despite setbacks) should still be better than others; and the worst may be over in 4 years with strong growth resuming in 2011-12.

Details

• Queensland has replaced NSW as state most likely to drag Australia into a long recession. Its budget position is worst and citizens face biggest fall in living standards (and doubling of unemployment). Queensland faced budget turnaround over 4 years of $14bn, while NSW only faced $5bn. Queensland has itself to blame because of economic reliance on mining royalties, an overheated property market and cross-subsidies to keep its budget in the black. Infrastructure spending was committed that could not be stopped. How much Queensland's folly costs Australia depends on how long recession lasts [1];
• unemployment will peak at 7.25% in 2010-11. Business investment is expected to fall 25%.  Economy is expected to shrink 0.25% over next 12 months, before growing 2.75% in 2010-11 [1];
• Queensland continues to show rapid population growth (1800 per week of which 1000 are international, 410 (and falling) are from interstate).  Budget papers suggest that worst of global economic crisis will be over in 4 years. Economic growth of 2.75% is expected to resume in 2010-11 and recover fully (4.5% pa) by 2011-12 [1];
• Queensland's unemployment rate will rise drastically in next few years - especially in construction industry [1];
• Queensland faces: end of mining / property booms; stalled private investment; more jobless; increased government debt while government tries to cut spending. [1];
• despite Queensland's budget difficulties, government rejected the notion that Queensland had become economic basket case - as its economic performance still exceeded national average [1]
• business is not happy with budget (despite positive view of infrastructure spend) because of lack of payroll tax relief. BDO Kendells (Dennis Lin) suggested that budget had no real plan to get books back into black. CCIQ (David Goodwin) suggested that cost of business was rising, but could not be passed on. It was of concern that spending would rise 7.4% in 2009-10 with wages up 9.1%, State deficits will rise to $4.1bn and surpluses are not expected til 2016-17. Grants to new home owners were seen as only a small aid to a sector facing significant difficulties - by Paul Nash (Devine Queensland). NAB (Julian Pearce) saw infrastructure spending as positioning Queensland businesses for recovery [1]
• business had been advised of budgetary problems and that the alternative to budget deficits was larger scale unemployment and cutting back on infrastructure that was seen to be essential [1]
• Queensland's economy will contract - but less than most other states despite unwinding of mining boom and consequent sharp fall in business investment (which also reflects vacancy rate and limited funding access affecting property). Soft household consumption will be another constraint. $18bn pa state capital works will offset retreat of private sector capital investment. Exports will fall in 2009-10. Recovery is not forecast until 2010-11. [1]
• opposition warned of consequences of debt blow-out (from $64bn to 85bn) in terms of increased costs of fuel, food, water and power. AIG (Chris Rodwell) argued that business would face an extra $500m costs. [1]

Government Administration

Various observers suggested that past government administration had been deficient, eg in relation to: ineffective use of (and lack of savings from) massive revenues gained during boom years; political interference in operation of GOCs; lack of planning resulting in emergency infrastructure development; and limited use of PPPs. The Opposition suggested that asset sales were needed because of many years of poor administration. Premier defended sales on the basis that: government could no longer afford to make significant investments in some infrastructure; and rating agencies had a perverse approach which unfairly penalised governments with profitable GOCs.

However its was also suggested that Queensland, whose governments had long under-funded essential infrastructure and which had not focussed on forward planning, had tried to fix its dysfunctional infrastructure - as compared with NSW (for example) which has yet to do so.

Details

• government faces problems in convincing people that it made the most of revenues it gained over many years. Each year from 2003/04 actual revenues exceeded estimates by $3bn. Over four years to 2007/07 revenues rose 65% (from $19.9bn to $32.6bn). Though there were demands (eg effect of drought and education / health needs) some could have been saved to avoid current problems (according to QRC). [1]
• former Treasurer (Keith De Lacy) argues that 25 years of meddling by successive governments has undermined the efficiency of GOCs whose corporatisation he started. Political interference prevents effective operation - yet government shareholders can't resist interfering. Ken Wiltshire also argues that GOCs need to operate at arm's length. However ministers and officials have often set policy and creamed off dividends arbitrarily. There has been an enormous difference between the operations of GOCs and listed public companies [1];
• Opposition criticised $16bn in asset sales and expected rise in debts to $85bn - arguing that sell off of profitable assets will cover 11 years of mismanagement, but yield very low prices. Queensland once had strongest balance sheet in country - but now the worst. [1]
• Sale of assets will result in many Labor mates losing board positions [1]
• Paul Clauson (Infrastructure Aust Qld) suggests that lack of planning was a problem - as with emergency development of water infrastructure. Money might have been saved by putting projects such as Gateway duplication up for PPPs  [1]
• Comparing Queensland and NSW (which is in better financial position) is complex as NSW has dysfunctional infrastructure - but has not attempted to fix it as Queensland has (according to John Quiggin). [1]
• when Anna Bligh took over from Peter Beattie she believed state was too reactionary, and needed to plan for new challenges. Essential services have always been under-funded in Queensland - Australia's most decentralised state. Government maintained political support by exploiting boom-time revenues. It borrow heavily for infrastructure to meet demands of population growth - rather than end low-tax status or cut public sector. Then recession hit.  [1];
• Premier defended asset sales on the basis that: government could no longer afford to keep making significant investments in such infrastructure - so this option was best in terms of maintaining those assets and providing for community's needs. Queensland had been penalised because (a) the debts of GOCs had been on its books and (b) rating agencies adopted a perverse approach and penalised governments when their GOCs were making profits [1]

Future Strategy

In relation to forward-looking strategy, it was suggested that: future deficits reflect priority assigned to creating jobs; structural reform of economy might be needed to regain AAA credit rating; budget reflects hope that recession will be shallow and brief; there is little beyond catch up infrastructure spending proposed; there are no contingency plans if situations worsens; more GOCs may need to be sold; while useful steps have been taken there is no certainty about the further reforms that are still needed.

Details

• Queensland will suffer $13bn in deficits over next 4 years - as budget has given priority to jobs. Total government borrowing is expected to reach $85bn over 4 years with interest 10% of revenue by 2012-13 (ignoring effect of asset sales). Standard and Poors indicated that AAA credit rating might be restored after 2013-14. However structural reform of economy as well as asset sales might be needed  [1]
• NSW and Queensland budgets involve spending binge based on assumption that recession will be shallow and brief. Depression era economics have been used to justify massive spending rises. Queensland suffered a large revenue meltdown ($15bn) but has realistic projections on return to surplus. Privatisations may not be enough to restore AAA rating.   Too much of Queensland's spending involves catch-up and maintenance instead of productivity-enhancing investment. Other GOCs may need to be sold to keep debt under control. No state has credible plan to repay debt if everything doesn't go as planned. Required savings won't come from chipping away at public service - but will require more privatisation [1]
• Government hopes unprecedented deficits will save state from economic abyss. $18bn infrastructure spend will result in a decade of deficits. Current year's deficit will be $574m (down from $1.6bn surplus estimated 4 months ago). Restoring Queensland's AAA credit rating will take 5-10 years. Opposition leader said that government was addicted to debt and 'played us for fools' by not revealing problems in March election [1]
• State revenues will be $37bn with spending of $39bn. Revenue loss over 4 years has been $15bn. Business investment will fall 17%. Treasurer has done the smart thing by spending to counteract economic downturn (as governments worldwide are doing).  [1]
• Useful steps have been taken to restore fiscal position (ie cutting fuel subsidy and privatising some assets). However there is uncertainty about the commitment to reform - given governments jobs-not-cuts policy agenda. [1]

• it was unrealistic to try to debate the state budget without considering uncertainties in the economic outlook;
• there had been reasonable grounds for concern about structural problems in Queensland's public finances before the most recent economic boom and bust;
• those concerns had been compounded by ineffectual management of large-scale spending on catch-up infrastructure; and
• assessing whether serious market failures exist should be the most important consideration in deciding whether to privatise government owned corporations (GOCs).

The latter suggested, for example, that:

• Queensland's budget - recently in deficit - is now very strong because of economic good luck. Gradual economic diversification will reduce future revenue difficulties - though an economic shock in China could be a problem. Growth at well above the national average will continue [1];
• this budget may be as good as it gets. Economic growth is based on a boom in China and India. Changes by the Grants Commission could take Queensland's hand away from the 'national cookie jar', while high levels of infrastructure spending will make financial situation tighter [1];
• budget is economically responsible and fiscally generous. Social spending showed a government with heart, while impact of population boom was coped with. Funding for Smart State was based on desire to increase contribution to economic growth from labour productivity. The budget indicated that revenue will be tighter in future [1]
• budget is one of Queensland's best. Business will be happy with high economic growth and surplus. Large infrastructure spending reveals long term thinking and 'pump priming'. Regional spending is high. Support for R&D and teachers will convince those skeptical of Smart State. A change to Grant's Commission's formula - because of Queensland's rapid growth - could end the financial party [1].

Capital spending

The budget's high level of capital spending was presented as a counterbalance to a projected economic slowdown [1]. None-the-less the proposed rate of capital works spending seems irresponsible. The 2005-06  budget involved $8bn in state capital spending (a 30% increase, following a 20% increase the year before) [1]. There are already construction cost blowouts because of construction capacity constraints [1], and the premier indicated  that a skills shortage was likely to lead to overheating [1],

Moreover spending proposals may not have been well considered. For example, proposals to upgrade specific infrastructure to meet future demands for coal transport were described as 'irrational exuberance' and likely to be sub-optimal by a major mining company [1].

Sustainability

Queensland's budget proposes recurrent spending of $25.7bn, a 6.8% increase roughly in line with the 6.2% revenue growth in the previous year - though overall revenue growth is projected to stall in 2005-06 [1] 

Furthermore the budget also involved the start of a major borrowing program to fund infrastructure [1]. Government trading enterprises face a projected $10bn deficit over the next 4 years [1], and the government is 10% in deficit overall in 2005-06 according to Standard and Poors [1]. Wage cost pressures are likely due to low unemployment [1]. The overall budget outcome, moreover, is forecast to fall $2bn pa over the next 4 years [1] - mainly because of infrastructure spending and tax cuts. One observer suggested that it may become necessary to borrow for ordinary operations [1]. The premier pointed out that the future budget position will be much more difficult due to the large infrastructure program [1].

When the Health System's Review produced concluded that there seemed to be very large funding shortfalls affecting Queensland's health system (eg a failure of funding to match population growth and a deficiency of 2000 doctors), the premier indicated that future budget surpluses would be devoted to this [1]. 

Queensland has long faced underlying difficulties in its public finances as outlined below.

Reasons for this include: above-average population growth which counterbalances above-average economic growth; infrastructure backlogs; past reliance on asset stripping and creative accounting to balance the budget; uncertain return on financial assets in a financial market reversal; an economic structure which assumes low taxes - and presses for further tax cuts [1]; cost pressures; under-funding of apparent spending obligations; and interstate pressure to treat Queensland less generously in distributing federal funds.

These pressures have been offset recently (to an un-quantified extent) by large revenue gains associated with property and commodity booms [1, 2, 3]. However those gains are likely to be temporary and the high levels of recurrent spending that are being committed will be difficult to unwind. Financial difficulties are likely when the booms end [1, 2].  Queensland spent revenue as it became available rather than building up a surplus during the boom [1]. 

Some reasons to suspect that the current economic booms (and the revenue gains they generated) could be transitory are:

• for more than a decade demand in the global economy has been highly dependent on a credit boom - for reasons outlined in Structural Incompatibility puts Global Growth at Risk. In essence, a rapid rate of credit growth has been both caused (and self-justified) by:
  • asset price increases (initially in equities and later in real estate) as the foundation for (a) consumer spending in the US (and also in Australia) that considerably exceeds income, and (b) export driven growth in Asia;
  • a huge expansion of unprofitable investments in production capacity / infrastructure in East Asia - which translates into losses in banking systems that can only be protected so long as there is a large current account surplus.
• this situation reflects a self-generating 'bubble' - though when (if?) the associated financial imbalances that concern central bankers [1, 2] will cause it to deflate / explode  is uncertain. Ultimately the 'bubble' depends on the US's ability to borrow, which must be approaching a limit [1];
• Australia's commodity boom depends heavily on demand from China, one of the principals in this 'bubble'. Moreover:
  • China also faces various other unexamined sources of potential economic dislocation - such as domestic discontent and environmental stresses (see China's Development: Assessing the Implications); 
  • there are signs of overcapacity due to over-investment. For example, massive overcapacity, and a collapse in profits, have emerged in vehicle production by investment on the assumption of continued 70% pa growth in domestic demand which has not eventuated [1]. Capacity utilization in many industries, which have been developed with little regard for market demand, seems to have fallen (eg to around 60%).
• the commodity boom is likely to end in 2 years - as other producers come on stream. Australia has not chandelled the boom well because it has over invested at the peak [1]
• there seem likely to be limits to what can be achieved by simply continuing the economic reform process which has aided past growth [1] - see also Australia's Strategic Positioning: The Challenge to Leaders. Queensland in particular faces serious unmet economic challenges (see Queensland's Economic Strategy), while efforts to diversify the economy through Smart State seem to be merely a pretence to gain ill-informed political applause (see Commentary on Smart State).

The suggestion by Queensland's Treasurer that conservative Treasury estimates exaggerated the projected decline in Queensland's budget surplus over the next few years [1] could be well wide of the mark. Australia's Reserve Bank has however suggested that the potential risks to global growth suggested above could be managed [1].

The claimed budget outcomes are uncertain, noting the inclusion of earnings by the Queensland Investment Corporation in the budget bottom line though this can't be used in consolidated revenue. Other examples of apparent creative accounting in Queensland's recent history (see below) also cast doubt on the budget figures.

Sustainability is also at risk because of dubious Grants Commission arrangements for horizontal equalization which (in effect) provide a subsidy to Queensland at the expense of other major states because Queensland's economy is geared to activities that maximize state taxes but are relatively unproductive (and thus weak in generating income taxes and GST relative to the state's population and share of public spending). Pressure for review of this arrangement continues [1]. The Treasurer's argument that Queensland only gets its population share of payments [1] is not the point, because the problem is Queensland's limited contribution to national tax receipts.

It has been suggested that Queensland needs a broader tax base to provide the base for lower tax rates [1].

Administrative Capability

The effectiveness with which resources are used is as important as the quantity of resources which are made available - and recent administrative disasters in Queensland (electricity network development, health system, child protection) combined with indications that similar difficulties are pervasive do not lead to certainty that money will be well spent [1, 2].

For example, social spending has reportedly risen 80% since 1998 [1] - yet Queensland still had a fiasco in its health system (see Intended Submission to Health System Royal Commission).

There are indications that Queensland has serious social problems - see Commentary on Is the Smart State a Just State.  The latter document also suggests that those problems can not be solved by just throwing money at them - as this is likely to result in nothing but an increase in publicly funded welfare services which increase dependency. However the budget seems to have done just that [1].

Key points include:

• the budget position in 2003-04 was substantially improved by turn-around in earnings on invested assets (which contributed $1bn after 2 years of losses), and large stamp duty payments (up $500m to $1.8bn) associated with a property boom [1], as well as by increased GST revenues (up $600m) [1]. Much of the increased investment income will not be retained. Stamp duty payments are forecast to fall $400m in 2004/05 (to $1.4bn) [1].

  Thus increased spending in 2004-05 is likely to be financed by borrowing and GST. Underlying pressure for tax increases are still there.

• 2003-04 surplus is not as good as it seems because Queensland fully funds its superannuation commitments so that gains and losses in QIC's investment portfolio show up in the budget operating result [though they do not provide a cash source which government can draw upon]. Past deficits were influenced by poor investment returns [1]. Because of the distorting effect of returns on super funds these are likely to be excluded in future [1].

• government appears to intend to borrow for industrial development projects [1] which is probably inappropriate - quite apart from poor policy basis for those programs;
• Queensland's population boom (principally in SEQ) both increases revenues - and creates large increases in spending demands [1]. How this will balance out is anything but clear.

there is nothing outstanding as major contributions to improving arterial roads - money is being spent but it has to cover a lot of territory

• Smart State Development Fund was announced in October 2003 - involving borrowing of $1.4bn for infrastructure - $400m for City Train and the balance for education, health and transport facilities [1]. A need to define what it would be used for has been suggested [1]
• rapid economic growth, which has been achieved from domestic consumption and housing construction due to population inflow, is assumed to now have to be maintained through exports [1] - an assumption that seems most problematical (see Difficult Trading Environment)

• What effect will capital spending have on budget when boom over - it will stimulate economy which will generate revenues.

  What is the actual need relative to booming population gains. Note classic naive local authority

  The additional infrastructure spending will simply accelerate existing capital works programs - and does not involve any additional initiatives to deal with apparent infrastructure backlog in SEQ. It would merely prevent the backlog from further increasing [1]

Building program prior to 2004 election was based on property tax windfall [1]

Key points include:

• Queensland's 2002-03 budget was in deficit ($350m) for the third successive year [1]

[CPDS Comment: It is possible that federal governments could expect states to assume large additional funding responsibilities. For example, difficulties that the federal government is experiencing in funding tertiary education are being seen as requiring top-up funding by the states which they can 'afford' because of the GST [1]]

• Queensland's budget outcome has been adversely affected by global financial markets [1, 2], because of the way gains in superannuation funds directly affect the bottom line [1]

  [CPDS Comment: in earlier years gains from the financial market boom were relied up to support large increases in spending]

• the budget position has been improved by a property boom, and federal grants [1, 2]
• revaluation of assets has been used to improve the budget bottom line [1, 2];

  [CPDS Comment: many of those assets have no realizable cash value]

• special dividend payments were sought from GOCs on the basis of their revaluation reserves - a practice whose legality the Auditor General has sought legal advice about [1];
• a total of over $1bn has been obtained from GOCs as special dividends over the past 4 years [1]

  [CPDS Comment: Much greater amounts appeared to have been taken over the preceding four years - see Note 53]

• cash is being drawn from GOCs to support the state budget using accounting tricks - and this undermines the purpose of corporatisation whose goal was to shield government enterprises from such manipulation [1].  Such asset stripping was seen by the Treasurer as a way of preventing the money from being mis-spent [1] and improving accountability - though this practice will reduce future income and can not continue indefinitely [1, 2]

  [CPDS Comment: Entities that are subject to both user-pays competition and political directives are very likely eventually to present large financial losses to taxpayers (see Note 76)]

• Queensland benefits from transfers at the expense of taxpayers in other states because that is the way the Commonwealth Grants Commission works

  [CPDS Comment: Queensland benefits from horizontal equalization payments from the Commonwealth because it has a weak tax base as a result of economic strategies that have encouraged the growth of low productivity industries]

• Queensland's balance sheet is the strongest in Australia [1]

  [CPDS Comment: Queensland's balance sheet is not the soundest in Australia when account is taken of relatively low non-financial assets - which also suggests chronic under-investment in such assets - see QCU Forum on Government Spending / Revenue

  Furthermore a strong financial balance sheet is only really able to be translated (by borrowing) into increased public capital spending (assuming that it is not good practice to borrow for re-current spending) - and there are serious constraints on re-current spending which might be further adversely affected by the ongoing cost of supporting additional capital assets].

• Queensland's financial position appears to be excellent - though there are economic risks [1]
• It is not possible to seriously criticize Queensland's overall financial position [1]

  [CPDS Comment: There appear to be flaws in each of the reasons given for this view [1]]

• new taxes are being considered [1, 2, 3]

  [CPDS Comment: there is limited scope for increasing state revenue through increased state taxation]

• Queensland's forecast future surplus depends on a 7.5% return on equity assets - which seems optimistic [1, 2]
• Industry groups generally praised the budget, because (a) financial assets remained sound despite recent deficits (b) Smart State strategy is enhancing the business environment and (c) Queensland's low tax status is valued [1].

  [CPDS Comments: Queensland suffers a major problem in that there are few independent institutions able to provide competent economic or public policy inputs to political debates (see Queensland's Weak Parliament).

  Smart State is purely for political appearances - as the main constraint on the growth of innovative enterprises is the lack of commercial capabilities, and this is not aided by public funding of education / training / R&D (see Comment on Smart State] or by government 'assistance' services to firms. There are some indications that it is finally being recognized internally that Smart State is merely a political slogan, rather than a serious policy [1, 2].

  Queensland's low tax status has been a significant factor in encouraging the development of low productivity industries (see Queensland's Economic Strategy), which has in turn created the weak tax base which requires Queensland to dip into the pockets of taxpayers in other states to fund services.  It seems most unlikely to be sustainable - see QCU Forum on Government Spending / Revenue]

About the 2002-03 Budget

In brief published assessments of the Queensland's 2002 budget might be summarised as follows:

• the 2002 budget is socially responsible under difficult circumstances - though it lacks initiatives relevant to business. In particular greater infrastructure spending seems to be expected;
• regarding Queensland's $486m operating deficit in 2001-02 it is variously suggested that:
  • the real deficit is even greater, because losses by Government Owned Corporations have not been included in the consolidated government account;
  • Queensland's operating deficits are not significant because of the state's relatively sound net asset position. In fact the deficit is largely the result of losses on financial assets;
  • government should be far more willing to borrow to fund investment - and there are many areas where increased spending is needed;
• budgeted revenue depends on projected economic growth - and observers are unsure whether the growth estimate is over- or under-stated;
• large staff wage rises could undermine the budget.

Unfortunately published assessments of Queensland's 2002 budget appear to be superficial, and to have overlooked related issues that suggest real difficulties. In particular:

A. There are indications that Queensland's public accounts may have been infected with a touch of 'Enron-itis' (ie misrepresentation of assets and liabilities in the capital account). For example:

• the present state government has had a miraculous ability (which its predecessors lacked) to find tens or hundreds of millions of dollars to devote to each of numerous favoured projects with much less apparent impact on the budget than might have been expected;
• current accounting standards (especially GFS practices) have been claimed to allow governments to do the sorts of things that Enron had to break the rules to achieve [1]
• the assets of Government Owned Corporations were stripped - without it being clear what was actually happening - noting that in recent years a poorly-explained $2bn pa item called 'equity return' has appeared (and disappeared) in the budget;
• government borrowing has been removed from the budget - by making this part of the consolidated capital position of individual departments. Under an accrual accounting system there is scope for manipulating the value of assets (to offset liabilities) - especially where assets are valued at estimated depreciated replacement cost;
• losses incurred by GOCs have apparently been ignored in calculating the operating deficit in the 2002 state budget - according to Opposition statements. [Moreover there is a huge risk in the longer term of large losses by GOCs and other commercialized entities that are subject to both political direction and to user-pays competition];
• $220m was 'raided' from a fund set up to protect property consumers [1];
• Earnings by Queensland's superannuation funds have been consolidated with general public finance so as to make the operating result look a lot better than it actually was during periods of rapid share market growth, and now making the operating result look worse (Madigan M 'Budget in confusion after super funds used as prop',  CM,  2/11/02)
• the Auditor General is reportedly concerned [1] about the need for more details of arrangements made with the private sector. Note also:
  • Queensland has a growing propensity for 'buying' industry, and some arrangements could be creating future liabilities that (under an accrual budgeting system) should be included in the annual operating accounts;
  • a preliminary undertaking appeared to be given inadvertently to provide a very large (say $2bn) subsidy for establishing a PNG gas pipeline;
• the Auditor general has also expressed the view that some departmental reporting to Parliament is inaccurate and misleading [1];
• the Auditor General has requested advice about Government proposals to draw special dividend payments to itself from the asset revaluation reserves of it electricity GOCs [1]. Such 'reserves' are purely a book entry and have a most uncertain cash value;
• State governments, who provide insurance over state hospitals, might face huge liabilities from the large medical damages awards that have bankrupted medical insurers;

• the actual cost of the re-development of Suncorp Stadium (estimated at $280m) was claimed (by a respected political analyst) to be open-ended and hidden in a 'web of financial fictions' (Fitzgerald R 'Political football now has a home ground',  Courier Mail,  30/4/02)

• politicisation of the bureaucracy (which has easiest access to information about any irregularities) has neutralized its ability to act independently in the public interest;
• previous misuse of capital funds for re-current spending (now identifiable as the 'Worldcom' syndrome) was alleged in relation one member of Queensland's Government (personal communication from a senior public service source);
• the previous Treasurer unexpectedly retired from politics following internal reports from his office of serious concerns about Queensland's budgetary position

B.  Published assessments of the 2002 budget have assessed it mechanically in terms of the quantity of spending, while ignoring the quality of that spending (ie whether it is likely to achieve desired and constructive outcomes).

C. Queensland faces growing financial difficulties and concerns about ineffectual economic strategies and public administration (see 2001 Comments). In particular ......

D. It is proving difficult to meet expectations related to infrastructure funding

In brief: Until a few years ago the Queensland Government had been spending about $3bn pa on infrastructure. The present Government increased this to $5bn pa - apparently mainly using money stripped from the assets of Government Owned Corporations (by forcing them to increase their debts in order to make an equity return to government - see Note 53). 

In 2002-03 state infrastructure spending has been reduced to about $3bn pa (presumably because asset stripping has become harder and the budget position is very tight).

To compensate funding infrastructure through Private Public Partnerships (PPPs) has been proposed - with reference to projects worth $2bn.

However PPPs appear to be of only marginal relevance (see About Public Private Partnerships). The basic point is that:

• the public sector remains the ultimate purchaser for most infrastructure on behalf of the public no matter who initially finances the project;
• increased infrastructure investment through user-charges could be employed without using PPPs;
• anticipated cost savings through efficiency seem likely to be lost in the complexity of contact management - because of the character of public goods and services.

Thus Queensland could be thrown back onto looking for some other means for financing a large quantum of spending on additional infrastructure services.  

It should also be noted that business observers (and some others) have claimed that Queensland's annual infrastructure capital spending really needs to be much more than $3bn (eg perhaps as much as $7bn PER ANNUM) to catch up with backlogs created in the 1980s and 1990s and with the effect of population growth - and to create an attractive business environment. Queensland's large geographical area and decentralized character also pose infrastructure challenges, as it is hard to adequately fund both regional Queensland and the rapid population growth in SE Queensland. 

In the event that a significant increase in infrastructure investment was seen to be needed, then existing weaknesses in Queensland's machinery for planning and delivery of infrastructure would become an even more serious problem.

E. There is very limited scope to overcome growing financial pressures merely by increasing tax rates (as has now reportedly been suggested):

• Queensland has a relatively weak tax base because of the under-development of its economy (see About Review of Grants Commission Arrangements);
• only a very small fraction of state revenues are determined by state policy (see Note 81). Thus quite large changes in state-determined taxes might be needed to achieve a modest increase in overall income. [An aside: The main growth tax that the states (indirectly) have access to is the GST, and proposals for an increase in the GST even before it is fully bedded down might not be well received by the public];
• Queensland's tax rates are not all that low relative to other states, with Tasmania's rates reportedly lower overall and Victoria adopting a highly competitive tax regime. Furthermore some other services costs are relatively high;
• periodic warnings (of unknown validity) have been given about the risk of capital flight from Australia if business taxes are raised; and
• Queensland's industrial structure has been built on the basis of economic strategies in which 'low taxes' were one (though not the only) critical feature. The state statistician showed the importance of interstate migration to Queensland's economy [1]. Low taxes are a factor in the industrial structure not only because of the direct impact of business taxes, but also indirectly because rapid interstate migration (which seemed to be triggered by removal of death duties and has since been influenced by living costs lower than in Sydney and Melbourne) has caused the demand for construction of housing and related facilities to be a major driver of economic growth (and thus of the current industrial structure) especially in SE Queensland.  However it can be noted that (a) Victoria reversed its population outflow, and was seen to be enjoying the same sort of economic stimulus from population inflow that Queensland has (see James C. 'Victoria growing in stature',  Financial Review,  17/7/02) and (b) rising housing prices in Queensland have slowed interstate migration [1]. Thus the economic consequences of increasing taxes may not be trivial.

The implications of Queensland's very narrow and weak tax base can be illustrated by considering the state's limited capacity to borrow to fund infrastructure (despite its positive net assets). A rough calculation suggested that if only a 10% increase in state-determined taxes was considered politically tolerable, then the TOTAL amount which the state might be able to increase its borrowings might be $7.5bn - which will not go far if Queensland's capital infrastructure spending needs to increase by several $bn PER ANNUM as some analysts have suggested.  

A further once-off pool of investment funds might be available if it is feasible to redirect revenue that is now invested in capital works towards debt repayment (eg a TOTAL amount of some $25bn might be invested if about $1.5bn pa of revenue were to be redirected).  However, given the pressure on revenue, this option may no longer exist.

This amount available for investment could be increased to some extent by application of direct user charges - which would take the pressure off taxes.

Furthermore well designed investment could itself lead to an increase in state taxes through expanding the state's tax base by:

• increasing economic output - both directly and through a multiplier effect of investment on community income;
• increasing economic productivity though allowing the economy to develop (ie undergo market-relevant qualitative changes) by providing economic, social and environmental goods and services which can not be provided through private investment.  For example, economic productivity is critically dependent on flexible change and there are always new forms of economic infrastructure subject to market failures which are needed to support new economic opportunities.  Public investments in social support to the disadvantaged can also raise productivity by overcoming political resistance to economic change. Similar effects can be achieved through appropriate environmental investments in an era where those constraints are increasingly important.

Strengthening Queensland's tax base by becoming serious about developing the state's economy might also significantly increase government revenue potential overall (see comments in About Public Private Partnerships).

However because of Australia's unbalanced federal financial system and the Commonwealth Grant's Commission's horizontal equalization principles, most of the gains from a stronger tax base in Queensland would be enjoyed by other states (see About Review of Grants Commission Arrangements). Moreover  .....

F. Queensland's economic position is not trouble free, eg:

• Queensland's already-low average community incomes declined further against national benchmarks in 2001-02 - despite the Smart State push supposedly to develop higher value-added industries. This is shown by the decline of Queensland's economic growth to the national average while the state's population growth rate remained much higher (see O'Dwyer and Mathewson below), which means that Queensland's per capita economic growth was below the national average.
• while a private investment surge is expected to boost Queensland's economy:
  • this 'investment surge' now increasingly features projects that have been significantly subsidized by governments (see Buying Industry);
  • some major investments are energy-intensive with very large greenhouse gas implications, and there are indications that climatic change is an issue which is going to have to be taken seriously (eg see article dated 27-3-02);
  • mis-handling of the PNG gas pipeline may have created a basis for investor concerns about sovereign risk
• there appears to be growing competitive challenges to Queensland's economy - perhaps requiring difficult structural changes.

G. Moreover other major states are apparently increasingly determined to prevent their taxpayers having to subsidize Queensland - a subsidy which occurs through interstate transfers of up to $2bn pa in Commonwealth revenues under the Commonwealth Grants Commission 'horizontal fiscal equalization' principles because Queensland's Economic Strategies have created a poorly developed economy and a weak tax base.

June 2002

Published Assessments 2002-03 - General

Government used windfall gain from stamp duties to fund new priority infrastructure and prop up the bottom line for current budget. A $1bn loss on QIC investments has been blamed for the $486m operating deficit (with a $382m cash surplus). State's economic growth in 2001-02 fell to national average of 3.75% for first time in a decade. Overall infrastructure spending is to fall. Significantly increased funding is to be provided to child welfare. There are no new taxes. Remedial action had been taken mid-year to prevent large deficit when the share-market turned down. Property industry complains of being used as cash cow. Queensland Commerce suggests that there is little in the budget for business - and complains about reduced infrastructure spending. Opposition pointed out that government had omitted losses by GOCs from budget bottom line - and that the real operating deficit was $883m. (Strutt S. 'Beattie's back to basics budget', Financial Review, 19/5/02)

Government has taken a $1bn hit - but can still expand services and cut business taxes because of the state's wealth inherited from the Bjelke Peterson era. Financial sustainability is not an issue for Queensland. The state will also benefit from an investment boom over the next year. Recovery in US and Asia should see 4.5% growth. However there are clouds on the horizon. The budget will barely be back in surplus this year - and Queensland is close to being in net debt. (Mitchell A. 'Beattie is cruising along', Financial Review, 19/6/02)

Standard and Poors gives Queensland a AAA rating despite its second deficit in a row, because of its strong balance sheet and forecasts of an improved position. Business criticised the budget for increasing social spending while infrastructure drops (Strutt S. 'Queensland is still in the black with agency', Financial Review, 20/6/02)

Pay rises for government workers could blow the budget - with only 3% increase being allowed, and nurses demanding 9% (McKinnon M. 'Pay hurdle the dark horse', CM, 19/6/02)

Opposition stated that Government had concealed large losses in GOCs in budget. If these were included, deficit was $883m and cash deficit was $200m. Net per-capita worth of Queenslanders has been reduced 4.8% over the past 5 years. The government is delivering rhetoric, not jobs. It spent too heavily on public service over first 3 years, and now lacks the ability to do more than keep up with population growth. Financial discipline, and decreases in numbers of public servants is needed. (Jones C. '$200m deficit buried by Labor', CM, 19/6/02)

The budget failed to deliver jobs or funding needed for hospitals and police - according to the opposition. Financial mismanagement had left government with little money for needed services. The deficit was much larger than claimed, as GOC losses were being hidden. There are no new job creating initiative, reduced capital works funding. The health system threatens to give way under the pressure of so many patients. The $148m program for child protection has come too late, and will not achieve full benefits for 4 years (Odgers R. 'Horan tips bucket on Budget of deceit',  CM,  21/6/02)

State government has done a good job in difficult circumstances this year. A $486m deficit would disappoint a government whose conservative financial strategies require operating surpluses, restricted borrowings and low debt. The deficit was not the result of abandoning fiscal rectitude - but of zero return on superannuation portfolio managed by QIC. Where some might say government has failed is in terms of capital spending - with a bias towards services to families, health etc. But infrastructure spending is down - despite rapid immigration and consequent need for more services - because government is too shy about borrowing. The budget resorts to relying on one-off increase in stamp duty revenue and emphasis on PPPs - which have problems in leaving risks with government if all does not go well. The reason for avoiding borrowing is hard to fathom - as households and businesses do so. Spending should increase on health, education, urban traffic congestion, and high unemployment. (Stanford J. 'Step outside comfort zone', CM, 19/6/02)

Queensland's budget has been described as solid but with heart. However its assumptions about future revenue growth are brave - and the more brave those assumptions are the less solid the budget looks. Government expects 4.25% growth - partly due to recovery by Japan - which most other analysts are not convinced about and that $A will stay below US 60c. Queensland's problem is where the revenue will come from. Its deficit was $486 m. The days of raiding the profits of electricity generators are over - as the dividend revenue source has been slashed. And costs are continuing to rise. ('Budget's balancing act', CM, editorial, 19/6/02)

A $148m four-year increase will bring Queensland's spending on child protection up to the national average - as the center-piece of the 2002 budget. Spending on health, education and police also increased - while the state's financial position declined due to global economic slump. Welfare groups welcomed the budget, while business groups doubted its growth forecasts. The opposition suggested that the books were cooked by concealing major losses by GOCs (including power companies). Capital spending was cut from $5.1bn to $4.8bn (Franklin M. '$148m to save kids', CM, 19/6/02)

$400m windfall from stamp duty and $150m from extra dividends did not stop second annual deficit - due to collapse in QIC earnings. Deficit could have been $1.1bn. Government rejected claims of prior QIC chairman of interference - and rejected suggestion about privatizing QIC. (Emerson S. 'Treasurer defends red result', A, 19/6/02)

Queensland has fully funded its superannuation liabilities (about $11bn) and even long service leave - and has about $13bn in financial assets as well. In fact the deficit is mainly due to the effect of market downturn on its financial assets. Thus the budget deficit which is projected to continue to 2005-06 (which would be bad news elsewhere) is not significant (Wood A. 'On balance, deficits no cause for gloom in the sunshine state', A, 19/6/02)

Economy

Queensland has had a population growth of 8.5% over the past 4 years - the largest growth in Australia, compared with a national 6% rise - but tough times have reduced 2001-02 economic growth to the national average of 3.75% (O'Dwyer E. and Mathewson C. 'Queensland the boom state', CM, 18/6/02)

Queensland's economy will grow 4.25% according to state government estimates - providing $A does not appreciate too much - as this could affect mineral and tourism exports. Commerce Queensland expects growth to be lower - because of lack of incentives for business but ABN Amro Morgan states that consensus growth forecast is 4.7%. Government expects that major growth risks are $A strength, strength of trading partners, timing of investments, inflation and possible drought (McKinnon M. and Anderson F. 'Growth reliant on dollar value', CM, 19/6/02)

The budget assumes that $13bn investment will boost Queensland's economy (including Comalco Aluminium and AMC Magnesium Plants). Exports and tourism are also expected to pick up. Employment should rise 2.5% and unemployment fall to 7.5% (Strutt S. 'Mackenroth banks on $13bn investment surge', Financial Review, 19/6/02)

Economic growth is forecast at 4.25%. Strong investment growth and export recovery are expected to underpin this (Strutt S. 'Qld to outstrip nation's growth', Financial Review, 18/6/02)

Business has endorsed the State Government's robust economic forecasts - but warned about the effect of volatility in global markets. Queensland Commerce suggested that the budget was light on new initiatives to stimulate investment. AIG suggested that budget balanced social responsibility with maintaining financial strength. (Anderson F and Sommerfield J. 'Business key to bullish growth', CM, 19/6/02)

Spending

Queensland will reach national spending levels on child protection in four years (Wenham M. 'Child protection counts on honouring inquiry pledges', CM, 19/6/02)

300 increase in police numbers and capital works are the center of fight against crime (Odgers R. 'Cash puts more on the beat', CM, 19/6/02)

Government is to provide $4.2m for central coordination task-force for PPPs in Department of State Development (Odgers R. and Anderson F. '$4.2m breath of life for infrastructure policy', CM, 19/6/02)

After spending less on social services for many years, Queensland has now achieved parity (Fraser A. 'Servicing social commitments', A, 19/6/02)

PUBLISHED ASSESSMENTS 2001-02

General

"Few Treasurers would have been able to brush aside the figures revealing that Queensland had a huge operating deficit. Lesser political performers would certainly have been in deep water with the news that the state's unacceptably high unemployment was forecast to stay at 8 percent despite another bumper capital works program. But Mr Mackenroth's budget is being called everything from socially responsible to boring" (Strutt S. 'Boiler-plated Mr Fixit does Beattie's biz', Financial Review, 22/6/01)

The budget shows few signs of fiscal discipline (according to a UBS Warburg analyst). In 2000-01 there was a 16% ($1.8bn) increase in expenses over the previous year. The budget has inappropriately emphasised services delivery at the expense of infrastructure, according to another analyst. Positive features seen in the budget include: focus on reducing unemployment and up-skilling the workforce; public spending to upgrade IT (which appealed to IT suppliers though they were concerned that there might not be much spending with existing firms) and the $100m fund to support technology and innovation (Anderson F and Brannelly L, 'Payroll tax change bolsters government coffers', Courier Mail, 20/6/01)

Firstly the financial position is deteriorating (eg see published assessments above), and note that

• in 2000-01 Queensland appeared to be facing significant financial challenges (see Section 7 of Queensland's Challenge). Particular points to note include:
• the state's narrow tax base ( Note 49 on Queensland's Challenge );
• past increases in public spending that for years were much larger than the rate of growth of the state economy ( Notes 50 to 52);
• a weak tax base related to the low productivity of the industries that have been encouraged by low taxes (Note 69 ). Moreover Queensland is somewhat 'locked into' low tax revenues because of:
  • this established poor industrial structure; and
  • the adverse effect on economic growth which raising taxes rates would have due to the dependence of growth (and some industrial production) on rapid net interstate migration which is in turn partly dependent on low costs (see Section 7.2 of SEQ 2001: A Plan for an Under-developed Economy );
• the progressive erosion of Queensland's claimant status under Commonwealth Grant's Commission arrangements ( Note 63 );
• the recent reliance on capital funding derived from raiding the limited balance sheets of government enterprises ( Note 53 );
• the proposed adoption of new accounting standards which will inhibit the distortions of the capital account that an accrual accounting system allows through the values assigned to government assets ( Note 61 );
• the financial risks inherent in Queensland's corporatisation model for government business enterprises in any truly competitive environment ( Note 76 );
• the potential need to find substantial funds to re-capitalise various government business operations if the market values of their assets fall in the face of competition ( Note 75 ); and
• the practical limits on Queensland's capacity to borrow ( Note 81 ).

• there is concern by several other states that Queensland receives far more funds from the Commonwealth than the latter collects in revenue in Queensland (and an investigation into Commonwealth Grants Commission procedures has been launched as a result). The phenomenon reflects the weak tax base in Queensland that defective economic strategies have created (see Comment on Proposed Review of the Grants Commission Arrangements)
• there is little credibility in the forecast of future budget surpluses. For example:
  • government revenue in 2001-02 is being supported by assets sales (which are depressing operating results of Public Trading Enterprise) (Budget Paper #2. p21 and p27). There now appears to be little left to sell except for the electricity industry;
  • gross fixed capital formation is forecast to decline significantly in coming years (Budget Paper #2, p21 and p27) despite business expectations that infrastructure spending should actually rise (eg see article by MacDermott above).

    On reducing capital demands: The Queensland Government has indicated (in early 2002) that it can't maintain its record ($5bn pa) capital works spending without raising taxes - which it doesn't want to do. Private sector help in providing infrastructure is sought - and a Public Private Partnership arrangement has been developed to allow this (Strutt S. 'Beattie calls for private sector help on capital works', Financial Review, 6/2/02) [[CPDS Comments: (a) the relatively small amount that could be borrowed without significantly increasing taxation can be noted (see Note 81); as can (b) the inadequacies of arrangements for private public partnerships - See Comments on Infrastructure Partnerships]]

  • earnings from financial assets (on which projected forward budget surpluses depend) are forecast to increase strongly (Budget Paper #2, p32-33) despite the fact that financial market analysts generally expect earnings over the next decade to be well below those of the 1990s.
• There is a 'feel' in studying the budget documents that details are being glossed over, in areas where 'fiddles' might be possible. For example:
  • capital transactions have now been removed from the budget - and have become the responsibility of individual agencies (Budget Paper #2, p63), eg
    • Queensland Police have had to borrow ($22m) for the first time ever to replace run-down and overcrowded police stations (Greber J. 'Police run up $22m debt over antiquated stations', Courier Mail, 9/7/01).

    Removing agency capital transactions from the budget provides scope for 'fiddles' - and is an intriguing action by a government that seems to be able to find tens to hundreds of millions of dollars to generously support favoured projects that none of its predecessors seemed to be able to find.

    Note also: The adoption of Public-Private Partnership arrangements will shift some public liabilities off-balance-sheet. The requirements to incur debts which have to be repaid will be replaced by a contractual obligation which presumably (and somewhat deceptively) does not appear on the balance sheet (Gray J. 'Going private a $20bn shake up', Australian, 11/2/02). Similar effects have been achieved in the past through leasing, rather than purchasing, plant and equipment.

  • 'fiddles' are also possible in the assessment of net state assets under an accrual accounting system - through the valuations assigned to assets which may have limited financial value, but which offset (now undisclosed) borrowings.
    • Queensland's net state assets are rising as a result of asset revaluations (despite the poor 2000-01 operating result). But ...
    • Recorded net financial assets are however falling slightly - a fact which was not explicitly acknowledged (see Budget Paper #2, Section 2);

    As noted above, changes to rules related to valuing assets should soon reduce the potential for distortions in this area.

  • gross revenue includes around $2bn in 'equity return' which is not well explained (see Budget Paper #3, p45). In 1999-2000 and 2000-01 Public Trading Enterprises were required to borrow something like $2bn pa to increase their debt levels, and it appeared that this was then paid to the state as a return OF equity as its did not appear elsewhere in the budget - and (presumably though not provably) used to finance capital expenditure. However Robinson suggests that the proceeds of government asset sales in 2001-02 are being paid to state revenue as special dividends (a practice which itself concerned him). However, if this is so, than it is unclear what 'equity return' means.
    • perhaps it is purely a meaningless payment of a return ON equity - ie government says to an agency: you have $x bn in non-financial assets on which we expect a return of $y m, and your budget includes $y m to allow you to pay this back to us. However:
    • it might also be taken to mean a return OF equity. Is it possible that undisclosed and unwarranted borrowings are being used to contribute to gross revenue - which then are involved in an inter-agency transfer and appear in GFS revenue in another form?

There has been concern about financial analysts who have given investors un-ethically favourable assessments of shares to make profits for another division in the analyst's business from dealings with the company. When the assessments of Queensland's financial status that are offered by some analysts are compared with the above indicators, one can not help but wonder whether there are hidden relationships that may compromise the analyst's independence and turn them into mere 'hired guns'.

Secondly, while the Government's economic strategy emphasises highly desirable and long overdue diversification of the economy, the way in which this is being done seems quite amateurish.

Thirdly there appear to be technical weaknesses in the Managing for Outcomes arrangements which underpin Queensland's procedures for strategic planning and budgeting.

Finally the general problem facing Queensland's overall system of public administration is that trendy ideas, that may sound fantastic in theory, are often not practical or able to be capably implemented.

This problem arises because the Public Service has for some time operated under a mainly political, rather than a professional, mandate. In other words it is obliged to be more concerned with how policy appears to influential interest groups, than whether it works in practice.

See: The Growing Case for a Professional Public Service; Towards a Professional Public Service for Queensland; Section 5 and Section 6 of Queensland's Challenge; and its Continuation. A tentative proposal for Public Service Renewal on a Professional Basis has been drafted, a process which (whenever / if it is started) will necessarily take many years.

The result is that the Public Service has difficulty providing practical advice about policy and effective support with policy implementation - which translate into a potential to spend ever increasing amounts of money for ever declining benefits.

Moreover a mainly political focus constrains the Public Service's ability to protect the public interest by acting as a counter-balance to elected government (eg by ensuring that problem areas in the budget and elsewhere are not just 'swept under the carpet'). And whether financial data is really meaningful depends a great deal on the motivations of those who prepare it (as the Enron debacle has graphically illustrated).

Queensland's community, whose representatives have long tolerated an inept and unjust system of public administration, may now be about to pay a high price for their apathy.

The above comments are based on only a cursory examination of the 2001-02 budget.

Queensland. State Budget 2001: Budget Speech (Budget Paper No 1)

• A Charter of Social and Fiscal responsibility has been accepted
• Net operating surplus in 2001-02 will be $24m in GFS (Government Finance Statistics) terms - with a $253 cash surplus.
• Total net state assets will grow to $59.3bn by 30/6/02. Financial assets cover all accruing and future liabilities - which contrasts with the situation in the Commonwealth and all other states.
• Aggregate expenditure will rise 6% in the 2001/02 budget.
• An enhanced agency strategic planning process is to be implemented (to align services and priorities).
• Economic challenges have included: the introduction of the GST; declining business investment; and US / Japan slowdowns. Yet Queensland still grew 3.5% in 2000-01. Forecast growth for 2001-02 is 4% - mainly due to household consumption; more housing construction and from exports.
• Jobs will grow 2% yet unemployment will still be 8% which is too high because of growing labour market participation and labour market growth. Jobs' growth under present government has been 111,000.
• Queenslanders pay 26% less tax per capita than other states. Payroll taxes are to be reduced, and some stamp duties are to be cut and rationalised. The coal royalty arrangement will be refined
• job creation (and breaking the unemployment cycle) remain major priorities.
• the Smart State program involves positioning Queensland for innovation and for the information economy (for which Department of Innovation and Information Economy has been created). Investments in education and research will seek this goal.
• Queensland is highly decentralised, and substantial investments will continue in the regions;
• emphasis will also be given to:
  • stronger police service, secure prisons and getting smarter about crime prevention
  • access to high standards of education, health, housing and family services as a basis for a better quality of life
  • protecting the environment and its biodiversity
  • articulating a vision, listening to the community, seeking productivity and being accountable
  • delivering on commitments

Queensland. State Budget 2001-02: Budget Statement (Budget Paper No 2)

• 1. Budget Strategies and Priorities
  • Highlights (p1)
    • 2001-02 budget provides an operating surplus of $240m and cash surplus of $253m in General Government on a GFS (Government Finance statistics) basis
    • General Government forward estimates are for a sustained and improving surplus in the out years - as required by the Charter of Social and Fiscal responsibility
    • General Government revenue will increase 5.5% over 2000-01 to $19.261bn
    • General Government expenses will increase by 3.1% to $19.237bn - after allowing for the effect of HIH insurance collapse and the transfer of a water supply board to local government
    • Total capital outlays will rise 2.2% to $5.115bn
    • Net state assets will rise to $59.259bn by 30/6/02
    • GSP (gross state product) will grow 4% in 2001-02 - up from 3.5% in 2000-01
    • employment will grow by 33000 jobs
  • capital programs are being reduced to more sustainable levels (p2)
  • Government has accepted a Charter of Social and Fiscal Responsibility (p4) and has defined its policy priorities and objectives (p5)
• 2. Background and Outlook
  • Key points (p17) - in 2000-01 General Government will have a $474 cash surplus and an operating deficit of $820m - due to collapse of HIH insurance, transfer of assets of a water supply board and $300m lower than expected investment returns on state's financial assets
  • Key financial aggregates (p21) include:
    • Gross fixed capital formation gross fixed capital formation will decrease in 2001-02 - as projects are finished and remain stable at a sustainable level
      1999-2000 2001-02 2004-04 (forward estimates p 27)
      General Government $2.6bn $2.0bn $1.6bn
      Public Trading Enterprises $2.6bn $2.0bn $1.3bn
    • net operating balance of Public Trading Enterprises - which is declining
      $99m ($249m)
  • Poor net operating result by PTE sector is due to once-off special dividend from sale of Brisbane Market Corp and long term lease of Dalrymple Bay Coal Loader (p21)
  • Net worth of state
    1999-00 2000-01 2001-02
    $57.293bn $58.473bn $59.259bn
    Including equity in PTEs $11.725bn $12.608bn $12.552bn
    and equity in PFEs $916m $682m $682m
  • Despite poor operating result in 2000-01, the net worth of state will increase in 2000-01 by $1.18bn due to revaluation in education, main roads, natural resources and mines and by Ergon Energy and Energex (p24)
  • Net financial assets are a measure of financial strength (= financial assets - liabilities). Net financial assets in General Government will grow by $1.131bn to $32bn as at 30/6/01 - while liabilities will increase by $1.5bn to $17.036. Thus assets are more than adequate for liabilities.
  • State net worth will increase by $786m to 30/6/02 - due to revaluations, gains from assets sales, net additions to stock, and net operating profits.
• 3. Operating Statement
  • Cost of HIH collapse was $354m (discounted) and transfer of water supply board cost $180
  • See summary operating result p31
  • Interest income in 2000-01 is to be lower than in 1999-00 due to lower rates of return in international equity markets. Future interest income is forecast to increase from $981m (2000-01) to $1260m (2001-02) and $1653m (2004-05) [p32-33]
  • Other Income - which includes dividends, royalties, property, fines, donations and sundry sources. Expected to increase 3.2% in 2001-02 due to greater royalties and general revenue growth across departments. Dividends will increase slightly in 2001-02 (from Ports and QRail - offset by smaller electricity supply dividends - the latter being counterbalanced by smaller government electricity subsidies) (p37)
  • PTEs will pay $1392m to revenue in 2001-02 and receive $807m in GOCs.
• 4. Statement of Financial Position
  • Financial assets will exceed liabilities by $15.013bn at 30/6/02
  • From 30/0/01 departments will shift from valuing assets on the basis of deprival (replacement) value to either cost or fair (market) value. Those changes are of only a technical accounting nature (p46)
  • Public Trading Enterprises situation (p52)
    • financial position of PTEs ($bn)
      • 1999-00 2005-05
      • Assets 26.2 27.9 29.0 29.6 30.0 30.4
      • Liabilities14.5 15.4 16.5 16.7 16.8 16.6
      • Net11.7 13.8
    • Net worth of PTE's at 30/6/02 estimated at $12.552bn increasing to $13.802bn by 30/6/04. Ratio of total PTE borrowings to equity plus borrowings = 49.9% (at 30/6/02);
    • Government's equity to total assets at 30/6/02 = 43.2% - which is similar to various major companies
    • Debt levels are comparable to private counterparts with 80% (ie $10.849bn) being owed to QTC, and $953 being balance of deferred tax equivalent liability of GOCs owed to government
• 5. Statement of Cash Flows
  • Government will record $2.276bn surplus from operating activities more than sufficient to fund $2.024bn in new financial assets (p55)
• 6. Capital Program
  • Key points (p63)
    • 2001-02 - capital program will have significant employment impact - and support 46300 full time jobs
    • 58% of capital expenditure will be outside Brisbane
    • under Queensland accrual accounting budget model, Managing for Outcomes, there is no specific appropriation for capital. Instead responsibility for capital management devolves to agencies which develop capital investment plans that include sources of funding for assets. Funding sources can include: equity injection from government; output funding to cover cost of capital consumption such as depreciation / amortisation; asset sales; borrowings; retained earnings and own sourced revenue.
    • Sources of funding for Property, Plant and Equipment and Other Capital in 2000-02 will be: Depreciation and amortisation ($2660m); Equity injections, borrowings and other sources ($2022m); and capital contingency reserve (negative $110m) = $4571m (p67)
• 7. Long Term Fiscal Trends and Risks
  • Key points (p73)
    • Queensland maintains a strong balance sheet
    • expenditure effort has moved above average
    • Queensland has maintained a competitive tax regime - but has seen the erosion of its tax base and reduced fiscal flexibility due to tax reform
  • Long term challenges include: aging population; general demographics; indigenous demographics; and the environment.
  • Funding capital expenditure (p79)
    • agencies are provided funding for depreciation to maintain existing levels of capital stock. Increases in capital stock are funded from operating surplus and by balance sheet means such as borrowing, asset sales, or converting financial assets to physical assets
    • fiscal principles in Charter of Social and Fiscal Responsibility are:
      • government will ensure sustainable services by maintaining overall surplus;
      • borrow only for capital purposes - where this can be serviced within the surplus;
      • financial assets will cover future liabilities;
      • maintain (and try to increase) total state net worth
    • funding new assets by sale of old assets reflects strategic decisions. Where do not want to sell old assets, there are limits to the capital program set by operating surplus and depreciation provisions (p80)
    • as the capital base increases, depreciation provisions increase;
    • Queensland agencies have taken a more cautious approach than some others - with higher depreciation rates. This lowers surplus and results in more frequent upgrade of assets.
  • Interest revenue was up in 1999-00 (giving a better surplus) and down in 2000-01 (contributing to the deficit) - p85
  • Other revenue includes contributions by PTEs - which are subject to risks (p85)

Queensland State Budget 2001-02: Economic and Revenue Outlook (Budget paper #3)

• 1. Economic Strategies
  • Highlights (p1)
    • pursuing strategies aimed at lifting Queensland's economic growth to increase living standards and employment. This requires responsible fiscal strategy, a supportive business environment, employment initiatives, balanced structural adjustment and infrastructure investment
    • accompanied by targeted action in key areas of education and training, regional growth, industry growth and innovation
  • quotes OECD Growth Strategy (2001) for desirable policy to increase growth.
  • outlines key issues in strategy (p3-11)
  • growth strategies
    • Education and Training Initiatives (note policy in Queensland State Education 2010 )
    • Regional Growth including (a) infrastructure (b) regional trade action plans (c) major regional tourism initiatives (d) regional business development
    • Industry Growth and Innovation including (a) $100m Smart State Research Facilities Fund (b) Queensland Innovation Strategy to provide grants for infrastructure / skills (C) Queensland Industry Development Scheme - government funding for new projects and (d) Governments Biotechnology Industry Strategy
    • Market reform - involving competitive markets in rail, water, energy
• 2. Economic Performance and Outlook (p15)
  • employment will grow 2%
  • unemployment will fall - but remain at 8%
• 3. Revenue Outlook
  • Some changes in tax rates (p35)
  • Total General Government Revenue (gross) 2001-02 (p36)
    • Taxes Levies, fees and fines$5137m
    • Commonwealth payments $9388m
    • Revenue from Financial Assets $2903m [see detail below]
    • User charges $2515m
    • Royalties $696m
    • Grants and contributions $714m
    • Gains, Revaluation and other $2302m [see detail below]
    • Total $23657m
  • Revenue from Financial Assets 2001-02 (p41)
    • Investment Earnings $1269m
    • Dividends $1164m
    • Tax equivalent payments $369m
    • Guarantee fees $79m
    • other $22m
    • Total $2903m
  • Gains, Revaluations and other Revenue (p45)
    • Equity return $2027m [$1870m (1999-00); $1995m (2000-01]
    • Gains and revaluations $11m
    • Other $264m
    • Total $2302m
  • "Equity return is a periodic payment made by agencies reflecting the opportunity cost to the government of the assets held by agencies - and is calculated on the value of the agencies total assets. In 1999-2000 agencies were fully funded for equity return and this has been built into ongoing funding. In 2001-02 the equity return is expected to grow by 1.6% in line with general growth in departmental equity" (p45)
  • Reconciliation with Consolidated General Government Revenue Data (p51)
    • Gross Intra-sector transactions Net revenue
    • Taxes Levies, fees and fines $5137m $297 $4840m
    • Commonwealth payments $9388m $9388m
    • Revenue from Financial Assets $2903m $315m $2588m
    • User charges $2515m $1264m $1251m
    • Royalties $696m $696m
    • Grants and contributions $714m $527m $187m
    • Gains, Revaluation and other $2302m $2084m $218m
    • Total $23657m $19170
  • "The main difference between revenue estimates here and in GFS is that GFS is net estimate excluding intra-sector transactions and also excluding gains and losses on asset sales and other asset revaluation adjustments"
• 4. Federal Financial Relations
  • Queensland has been disadvantaged by national tax reform because of its prior competitive tax environment
  • Queensland receives funds for reduction in state taxes that average $213 per capita as compared with national average of $819
  • Queensland receives only 1.7% of budget balancing assistance
  • Queensland's share of former Financial Assistance Grants has been falling due to changes in Commonwealth grants Commission's assessment of states
  • considering all Commonwealth payments to states in 2001-02, Queensland will receive $270m less than its per capita share

Queensland the Smart State - Investing in People and Communities

Smart State is a plan for the future. It sees Queensland with broader and more technologically based industries and more skilled and adaptable workforce. People will live in safer, cleaner and more secure environments. Communities will be stronger. Government services will be more flexible and better targeted. Economic strategies will be driven to new knowledge industries - with thousands of IT and biotechnology jobs and a vibrant cohesive society looking outwards to the world. Development will balance the competitive and productive needs of business with quality of life for citizens and public service delivery. Investing in People and Communities recognises that people are our top priority. All efforts are to improve lives of Queenslanders via job creation strategy, major jobs projects, schools, health services, etc. Government will continue to improve its relationship with the community. Government will support people at critical times in their lives eg early childhood, in school to work transition and in retirement.

• Securing Economic Prosperity:
  • Equipping traditional industries for new challenges, and investing in and attracting new industries
  • $55bn in projects are planned or committed (according to Access Economics Investment Monitor - March quarter 2001)
  • $5.115bn capital spending - more per capita than other states - 58% outside Brisbane
  • Private sector partnerships eg: CS Energy's Callide Power Station; Gold Coast Convention and Exhibition Centre; Intergen's plan for power station at Millmerran; Airtrain Consortium for Brisbane Airport Rail link
  • Local infrastructure and services - assisting via subsidies
  • Trade - $23bn exports - 22% of GSP - up 5.7% pa (cf 4.7% pa growth pf GSP) = 20% of national exports
  • Jobs - 30% of Australia's job creation since 1990-2000 - growth 2.5% pa cf 1.2% pa nationally. More for Breaking the Unemployment Cycle; strategic interventions intended for youth and aged
  • Smart State Research Facilities Fund - $100m to invest in world class research facilities - administered by new Department of Innovation and Information Economy.
  • Strategic industry development - emphasising aviation
  • Learning excellence - centres of excellence in Pharmacy and in Technology / Maths and Science in secondary schools.
• Farming for the Future
  • Understanding the environment (eg salinity and water quality)
  • Sustainable Land and Water management practices
  • Creating innovative technologies (applying advances in biotechnology and food and fibre science and innovation)
  • Adapting to change (eg farm business improvement, climatic information, market access and product)
• Protecting Natural Assets
  • Diversity
  • Enhanced protected Area Management
  • Great Walks
  • Protecting the Great Barrier Reef
• Putting Families First
  • Child health care
  • Nurturing families
  • Safe communities
  • Community and infrastructure support
• New Deal for YoungQueenslanders
  • Education
  • Skilling for jobs - big increase in apprenticeships
  • Participating in Queensland life
• Tackling Drugs
  • Prevention
  • Treatments
  • Law enforcement
• Senior Queenslanders
  • Quality of life
  • Safety
  • Working
  • Dental care
  • Volunteers
• Safety and Justice
  • Police service
  • Secure prisons
  • Community renewal
  • Responding to disasters
  • Access to justice
• Community Engagement
  • Office for women
  • Regional communities program
  • Multicultural affairs
  • Cape York partnership
  • Crime prevention
  • E-democracy trial over 3 years
  • Community cabinets
  • Qld events
  • Queensland's greats
  • Access Qld - a program to improve whole-of-government service delivery