Budget built on a loose foundation of beach sand

The past 12 months have been a time of Budget pain for Queenslanders, and the 2009-10 Budget continues the bad fiscal run.

A year ago the Bligh Government predicted it would have a $540 million Budget surplus in 2009-10.  That was based on the state economy growing by 4.5 per cent backed by a strong commodities boom.

How quickly things can change.  The wave of the global financial crisis hit our shores, and the State Government's finances were shown to be built on a loose foundation of beach sand.

Just before the election, the Government drastically revised its Budget bottom line from surplus to a whopping deficit.  Now the latest state Budget confirms an expected deficit of $2 billion this coming financial year and a sea of deficits stretching over eight years.

During the past few months Premier Anna Bligh and her Treasurer Andrew Fraser have been trying to point out that the GFC wave was in fact a revenue hit.  It is true revenue went backwards last financial year, and some revenues such as stamp duties and royalties will decline again.

However, the Budget shows a rebound in revenues expected this coming financial year from $35.9 billion to $37.2 billion.  Some of this increase is attributable to a federal bailout on infrastructure programs.  So much for the revenue hit.

The reality is that the current fiscal trouble afflicting the Government is the product of many years of excess spending.  About the beginning of this decade, spending grew at a moderate 3 per cent.  However, as the years wore on, the scale of spending growth increased to an unsustainable 12 per cent.  With the commodity boom significantly improving the private incomes of most Queenslanders, it could be argued that government did not need to grow so quickly.  But, unable to scratch its spending itch, the Bligh Government then decided to create a debt bubble of the like never before seen.  The state's rich fiscal inheritance of no general government debt is set to be overturned by 2011-12.

Total non-financial public sector net debt will expand from $14 billion in 2008-09 to $51 billion by 2012-13.

Putting such a massive mortgage on the future, of course, led to a downgrade of the state credit rating earlier this year leading to higher interest costs on the debt.

To its credit, the Bligh Government has made some decisions to try to put the Budget back on the road to surplus.  It is the least it can do, given that this Government created the Budget mess in the first place.

The major savings measures in this Budget include the much-publicised abolition of the 8 a litre fuel subsidy, privatisation of a number of key assets and a possible limit on future wage increases.

From an economic perspective, these are the right kinds of decisions to help ensure that Queensland once again lives within its means.  But there is more to do in future years to trim the fat of the state bureaucracy.

For a Government with a clear historical record of fiscal profligacy, however, it is an open question as to whether it will deliver on its savings commitments.

As academic John Wanna stated in a report Bligh commissioned before the election, multiple year savings measures tend to taper off quickly as governments lose their commitments to make hard decisions, and new policy and spending measures gather pace.

The politics of these announced expenditure savings are something else altogether.  This is because the Bligh Government was elected on a program of not reducing funds from the Budget, as stated in many of Labor's election media releases.

The Premier even undertook a jobs-not-cuts tour of regional Queensland to spruik her Government's election commitments.

From pre-election Budget savings attack to post-election Budget savings acceptance, the Bligh Government has done nothing but increase electoral cynicism about future fiscal reforms needed.

South of the border, New South Wales released its Budget on the same day, revealing a deficit of $990 million.  When Queensland's State of Origin rivals are able to deliver a better Budget outcome, but starting back from a worse economic position, this Queensland Budget's lack of effort becomes crystal clear.

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