The latest economic and fiscal update, released last week by State Treasurer Andrew Fraser, shows the Queensland Budget going from good to bad to worse in only nine months.
At the time of the Budget last June, the bottom line was estimated to be a healthy $809 million surplus for 2008-09. Since then, the State Government has backtracked.
In December, the major economic statement revealed a serious plunge in the surplus to a threadbare $54 million. Most commentators predicted that Queensland's Budget would deteriorate further, which has been confirmed by the latest estimate of a $1.6 billion deficit. The next two years will be even worse, with deficits of more than $3 billion in each year.
The drastic economic slowdown has played its part in the Budget deterioration. Transfer duties have taken a major beating as consumers lose their appetite for buying houses. Royalty collections will head south as commodity demand in Asian nations slows. Employment growth in what was once Australia's boom state has softened, reducing payroll tax collections.
The Government's spending side of the ledger does not receive as much attention in the update document. However, this is where a lot of the Budget action is occurring. In the two months since the December economic statement, the Government has revised its expenses upwards by at least $223 million. Whatever the economic weather, the Bligh Government keeps on spending like there's no tomorrow.
One of the more damning elements of the revised Budget is the expectation that Government borrowings will increase even further. In the December statement, borrowings were projected to rise by a massive 120 per cent from 2008-09 to 2011-12. However, the Government thinks this is insufficient as it now plans to expand its borrowing by 188 per cent over the next four years.
The danger with more Government borrowing is that it needs to be repaid into the future through taxes, fees, fines and other charges. The risk is that future generations will be required to repay the debt used to fund inefficient spending, without having given consent to the borrowings in the first place.
The chickens have already come home to roost on the debt front, with Queensland having now lost its prized AAA credit rating. Taxpayers will bear the brunt of even higher borrowing costs borne by the Government.
The Government is bereft of a plan to get Queensland's finances back on track quickly. Last December, it devised a plan to increase land and gambling taxes, vehicle registrations and defer the abolition of the transfer tax. It was hoped at the time that these extra tax imposts would help cure a then-temporary deficit.
However, a tax-driven deficit reduction would prolong the economic pain faced by businesses and consumers. In other words, it is the wrong plan at the wrong time. The Budget update now reveals that the higher taxes will fail to arrest the state's slide into multi-year deficits.
The Bligh Government now goes into this election campaign clearly wanting Queenslanders to think that the state's Budget problem is solely because of the global recession. The Budget update leaves no stone unturned in shifting the Budget blame to the state's major trading partners.
However, the Budget update compounds the possibility that the Government's self-inflicted fiscal mismanagement will instead be seen as a weakness in the period ahead. In an election likely to be dominated by economic issues, this weakness could prove to be deadly for the incumbent.
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