THESE days we spend quite a lot of time in Queensland.
The weather is more agreeable than in Melbourne and the beaches ain’t half bad.
But where once upon a time the state of Queensland was a fiscally conservative place and the one state in Australia where public servants’ superannuation was fully funded, it is now close to being broke. It was the first among the states to lose its AAA credit rating and without the remedial action of the Campbell Newman government, another downgrade was possible.
Just take a look at the figures. General government borrowing went from $2.7 billion in 2003-04 to $45.5bn a decade later. This is an increase of nearly 1600 per cent.
If we consider net debt, the Queensland general government ledger went from negative debt of close to $16bn in 2003-04 to plus $8.8bn 10 years on. This is a turnaround of close to $24bn.
(To be technical for a moment, the official calculation of net debt in Queensland is distorted because superannuation assets are included but superannuation liabilities are not. Neither super assets nor liabilities are included in the net debt figures of the other states. The preferred figure in Queensland is net financial liabilities which currently sit around $43bn.)
Queensland continues to operate a number of government-owned corporations, including in the electricity game.
It is also important to consider their financial positions when it comes to assessing the indebtedness of the state.
If we look at public non-financial corporations in Queensland, we find that net debt went from $10.1bn in 2003-04 to $32.4bn in 2012-13 — a more than threefold increase. And bear in mind that the Queensland taxpayer is ultimately liable for the debts held by these GOCs.
It all makes a mockery of that tearful statement of former Queensland premier Anna Bligh: “we are Queenslanders. We’re the people that they breed tough, north of the border.” Spendthrift and flabby would be more apt.
Now you might ask, haven’t all the states become debt junkies? It is certainly true that debt has increased in all states, but Queensland has amassed more debt more quickly than any of the other states. It beggars belief that gross general government debt in Queensland is higher than in Victoria and in NSW. Victoria’s population is 124 per cent of Queensland’s population and NSW’s population is 160 per cent.
The comparisons of net debt are slightly less odious for Queensland, but bear in mind the qualification outlined above. If we consider total public sector net debt as a percentage of operating revenues — arguably the best measure of the ability of a state to cover its debt obligations — Queensland now has the highest figure at over 70 per cent, ahead of NSW and Victoria, which has a figure below 60 per cent.
By anyone’s reckoning, apart from the Queensland Labor Party’s, the sunshine state has a serious debt problem. How did this happen? The short answer is that the Peter Beattie and Bligh governments went on a capital spending binge that was almost entirely funded by higher borrowings. There was nary a hospital, desal plant, water treatment works, road, bridge or tunnel that was not deemed worthy of construction, with the inflated costs all chalked up to the tab.
Even Beattie and Bligh had an inkling that there might be limits to the build-up in government debt. Beattie got out before things went really pear-shaped, but he did manage to sell off the state-owned lottery, the Golden Casket. The Bligh government bit the bullet somewhat and sold off the freight division of Queensland Rail and leased the Port of Brisbane. Even so, government debt continued to rise.
These days, the Queensland Labor Party is having nothing to do with the sale or lease of publicly owned assets. In what is the ultimate smoke-and-mirrors attempt to confuse the voters, the Labor document entitled Our State, Our Assets: A Better Way for Queensland contains the pretence that Queenslanders can have their cake and eat it too.
The deception in the document is breathtaking. First of all, it assumes away nearly half of the debt for which Queensland taxpayers are liable. The debt held in government-owned corporations is simply ignored. So instead of dealing with a figure of $80bn, the figure suddenly becomes just under $49bn.
The plan is to quarantine two- thirds of the dividends from GOCs in a debt reduction trust and to pay the debt back slowly — mostly in the period beyond the forward estimates. This leaves a gaping hole in the budget — these dividends fund recurrent expenditure — but there is no specific information provided in the document about filling the gap.
The Bill Shorten line of more growth and jobs doesn’t cut it with public-finance experts.
But there’s more. All the government-owned electricity assets will be combined, which will generate savings of $150 million a year, but with no forced redundancies. To claim annual savings of this magnitude on this transaction would make the most brazen deal-maker in the private sector blush. Moreover, there is every reason to think the ACCC would block the mergers on competition grounds.
And what about the debt that sits in Queensland’s government-owned corporations?
The truth of the matter is that the balance sheets of these GOCs have always been subject to political manipulation. There was a mandated 80 per cent dividend rule for many years.
The overall return on the capital employed is estimated to be around 3 per cent, which is inferior by any measure.
The government could sell up all the assets, put the money in the bank and the Queensland taxpayers would be better off.
While the Treasury worries about the potential for a fall in the flow of dividends from the GOCs — anyone want to buy an electricity generator at the moment? — the Labor Party thinks the dividends will grow.
The only way this can happen is if the monopoly power of some of the GOCs is exercised to lift prices to consumers. And bear in mind that electricity prices in Queensland are already among the highest in the country.
Such a move would be economically damaging and kill off the unspecified growth story that is needed to achieve an operating balance — something which Labor has also pledged to achieve.
The bottom line is that Queensland has a serious debt problem and it cannot be fixed by doing nothing (and doing nothing includes forcing the merger of the electricity assets). There is no choice but to put some of the GOCs on the block, particularly those whose value may well decline in the future.
The Newman government’s economic plan has a few holes and some silly bibs and bobs, but it does come to grips with the main challenge facing the state — and that is to pay down a substantial part of the debt as soon as possible.
Queensland may be perfect one day, but does anyone want it to be bankrupt the next?
