Today’s QLD Budget 2017-18 has downgraded growth forecasts across the forward years and is, to an extent and quite openly, laying the blame at the feet of TC Debbie for the slowdown. The Budget papers say “Queensland growth forecasts for 2016-17 and 2017-18 would have been higher, but for the impact of Severe Tropical Cyclone (STC) Debbie, which is estimated to have detracted around $2 billion or ¾ percentage point from economic growth across these years.” Certainly Debbie will have had impacts on coal, sugar and tourism exports across both 2016-17 and 2017-18 (TC Debbie struck the Whitsundays at the end of March and had severe flood impacts for days afterwards). But how much would this impact have been, and can it really account for the sharp reduction in growth forecasts for 2016-17 and 2017-18?
- At the end of 2014-15 QLD’s Gross State Product stood at about $309bn
- The 2016-17 MYFER forecasts growth for the 2015-16 year to come in at 3.2%
- In reality the result was just 2.4%, which saw GSP at $316.3 bn by June 2016
- MYFER had forecasts for 2016-17 of +4.0% and for 2017-18 of +3.5%
- These would have taken GSP to $341.3 bn by June 2018
- Today’s Budget has revised down growth forecasts to +2.75% in both 2016-17 and 2017-18
- This growth, if it were attained, would see GSP at $333.9 bn by June 2018; a shortfall of $7.4 bn over the 2 years from the MYFER forecast
If we assumed that the $2 bn negative impact of TC Debbie were spread evenly across the 2 years (i.e. $1 bn in 2016-17 and $1 bn in 2017-18) then we could have expected to see forecasts for 2016-17 fall to +3.7% (down from 4%) and +3.2% (down from +3.5%) in 2017-18; significantly less than the actual reductions contained in this Budget.
So if it isn’t the impact of Debbie that’s seen growth forecasts cut back so far, what is it?
Comparing the projected growth rates of the various components of GSP from the Budget in 2016-17 to today’s we can see the answer lies not just in exports (Debbie impact).
- Household Consumption (the largest single component) sees forecast growth scaled back in 2017-18 by 0.5%
- Private sector Investment is now expected to contract by 1.75% in 2017-18 when last year’s Budget had penciled in a 3.5% increase
- There is a reduction in Net Export growth forecasts in 2016-17 (down to +0.75% from +2%) but the forecast for 2017-18 remains the same at +0.75%, despite the supposed impact of Debbie in this financial year
The reduction in the forecast for Private Investment in 2017-18 would account for a bigger reduction in GSP than TC Debbie; some $3.3 bn. The decline in Household Consumption forecast would account for another $1bn in 2017-18 GSP.
Add these two elements to the $2 bn “Debbie effect” and we have most of the $7.4 bn shortfall between the MYFER and Budget 2017-18 forecasts.
This year sees a bigger than anticipated surplus for the Government ($2.8 bn rather than $2 bn) on the back of higher resources royalties. Unfortunately the slower than expected growth projections will see surpluses now forecast much smaller in the forward years. Previously forecast cumulative surpluses to 2019-20 of $4.6 bn have now been scaled back to just $3.8 bn despite the overshoot in 2016-17.