In the run-up to the Queensland state election, politicians are making all sorts of pledges to win over constituents, but few are willing to tackle a potentially paralysing problem: the spectacular growth in state debt.
Queensland’s public debt quadrupled from $21 billion in June 2004 to $85 billion in December 2011. Today, public debt is around $90 billion and on track for $92.5 billion by July.
The graph tells the tale. The deterioration is even more marked when it is recalled that $15 billion was recently obtained from asset sales, with no evident effect on outstanding debt.
Yet this stunning outcome is not mentioned, even by the most forceful of politicians. Like Lord Voldemort in the Harry Potter tales, Queensland’s debt is “he who must not be named”. Continuing “heroic” efforts to catch up or get ahead is the preferred tale of aspiring leaders.
The mortgage on the state is set to increase, with all parties promising more major infrastructure projects. The South East Queensland Councils advertise Labor, LNP and Greens as ticking off a continuance of $6 billion annually in infrastructure spending in their region alone. Some royalties are to be diverted to mining regions to address their acute problems. Mackay, for example, “needs” a $240-million ring road, but this seems well down the list.
The summer has been not overly hot or wet, so we can’t blame the weather for the political mania or the detachment from financial realities. However, Queensland has a debt greater than New South Wales and Victoria combined, with less than a third of their income flow to service it. This is shaping as a problem for the federation, yet not a voice is raised.
Locals complain about rising rego costs, rail fares, regulations, road congestion, rates charged by utilities, rents in mining regions, rudeness, robberies and recidivism – and that’s just the r’s. The recent announcementt by a fast-food chain of their likely adoption of fly-in/fly-out staffing may mark a new stage in Queensland’s development, although it must be noted that the state’s unemployment rate (5.5%) was the second-highest in the country after Tasmania (7%). Annual job growth was the second lowest.
“Uneven development” is the state of play and work in Queensland. If Australia is gambling on the mining boom to rectify its external imbalances, Queensland is where the public bets are laid. Western Australia has allowed and relied upon private provision in its sparsely settled regions. Queensland is different with more populated regions, already extensive public infrastructure and many contested ecosystems. Whole road networks need refurbishing for heavier loads. Under-resourced communities struggle to deal with “hosted” enterprises and their various demands.
Queensland has relied upon debt funding, principally bonds, in trying to meet such needs and perceived obligations. Escalating debts demonstrate the strategy has failed. New models of funding government are needed before things deteriorate further.
Much of the needed technical analysis has already been done. However, there appears to be an inability in the administrative and political arms of government to engage and think afresh so as to moderate existing pressures and restrike balances.
Whatever its composition, the temptation for an incoming government will be to continue to avoid sensible engagement. Strategy 1 will then be “ignore”. Strategy 2 will be “panic and sell assets”. Unfortunately, the first is the path to penury while remaining assets are now insufficient to make any meaningful inroads into debt. In passing, Strategy 2G - “panic, and think we are Greece” - would be absurd as problems are not of that order of magnitude. Yet.
Slashing the public sector will be another canvassed strategy, but services are already struggling and budgetary growth has not been unreasonable. There are some serious problems, but reduction, refocusing and reskilling are probably more sensible than the Austerity option.
This leaves Strategy 4 - “a moratorium on infrastructure” - until the house of Queensland can be put in order with viable funding arrangements in place. Debt funding of infrastructure will not work in current conditions, irrespective of any contractual dreams of public-private partnership players and the like. Feasible alternatives exist. They need proper scrutiny and sensible adoption.
The broader issue is sensible public funding of apposite development. This is a pervasive problem not just in Australia, but in many distressed nations. Vertical fiscal imbalances are only part of the problem. The nature of revenue, cost and risk flows need to be properly accommodated in analysis and funding arrangements.
There is a wider challenge for the Queensland and Australian economy: moving to a sustainable balance between gross state product and expenditure.
As can be seen in the graph of the Queensland economy, expenditure has exceeded product by an average of 3% for a quarter of a century.
The fundamental problem is that expenditures have not increased returns from production sufficiently. We need to confront the inadequate yields from investments if economic and financial integrity are to be restored in Queensland and across Australia. That’s Strategy 5: the real key to curtailed debts and economic success.