It’s not uncommon to find energy subsidies being criticized in IMF reviews of emerging economies. They’re often a policy favoured by irresponsible autocrats, as we’ve witnessed in various economic basket cases like Venezuela under Hugo Chavez. It seems the Queensland Government is drawing inspiration from some irresponsible emerging economies. The Courier-Mail reports that the Queensland government plans to distribute $1,000 of power bill rebates to households over the second half of 2024, at a staggering total cost of $2.5 billion. This move is nothing short of a grossly irresponsible and desperate vote-buying exercise. The government’s most recent forecast (in December 2023) of its operating surplus for 2024-25 was a mere $122 million, which will be completely swamped by the $2.5 billion (i.e. $2,500 million) cost of the subsidies.
They are not borrowing to build, but borrowing to pay for short-term expenses. Consider this: it’s akin to paying for your groceries on your credit card and not settling the balance within the 30-55-day interest-free period. We, the taxpayers, will bear the brunt of this cash splash for years, if not decades, to come. The ongoing interest bill on the additional $2.5 billion of debt the Government will incur, at 4-5% government borrowing rates, translates to an ongoing annual cost to the budget of $100-125 million. This financial burden will persist beyond the next financial year, inevitably reducing funds for crucial sectors like health, education, and policing in the long term.
It’s clear that the government simply cannot afford this measure. Instead, the government should do all it can to prevent the huge blowout in gross government debt to $188 billion, which it had previously warned about.
The government may have some clever way to pay for this measure that avoids a large operating deficit next year that I’m unaware of–for instance, if it has collected more coal royalties than expected, it could make an equity injection into Energy Queensland this financial year by 30 June. Still, it can’t avoid the fact that this ultimately means more debt than otherwise on the balance sheet.
This is not only economically and fiscally irresponsible but also environmentally irresponsible. If the government is targeting a 75% by 2035 reduction in greenhouse gas emissions, shouldn’t it be sending households a signal that they should conserve electricity? Instead, it’s subsidising electricity bills.
This is bad policy from a desperate government doing all it can to hold onto seats at the next election.
