Queensland Budget 2018-19…disappointing

Yesterday’s Queensland Budget for 2018-19 was a disappointment to us largely due to the lack of any attempt to reign in the ballooning  public sector employment costs. It is this issue (rather than increasing debt levels) that concerns us greatly and we believe that without serious efforts to control the expense side of the equation the State will continue to dig itself an ever deeper hole. Our post yesterday (see here) detailed our concerns so today, rather than go over that ground again, I wanted to take a look at the impact that yesterday’s Budget had on those calculations. For a detailed and thorough analysis of the other issues and concerns within the Budget I would recommend the analysis from Nick Behrens at QEAS (which you can read here) for a level-headed and pragmatic discussion.

As the table below hopefully makes clear, the outcomes from the 2018-19 Budget in terms of employee expenses (incl super) as a percentage of operating revenue see some improvements from the 2017-18 MYFER; but that’s all due to improvements in the revenue side. There are only ever worse outcomes when we consider the projected expenses. (Numbers in green show an improvement from previous forecasts, red are a deterioration)

Document 16-17 17-18 18-19 19-20 20-21 21-22
17-18 Budget
Revenues 56,434 55,869 56,138 57,887 58,982 na
Employee Expenses 23,910 25,173 25,473 26,448 27,342 na
% 42.4 45.1 45.4 45.7 46.4 na
17-18 MYFER
Revenues 56,194 56,464 56,246 57,746 59,346 na
Employee Expenses 23,919 25,456 26,138 27,215 28,163 na
% 42.6 45.1 46.5 47.1 47.5 na
18-19 Budget
Revenues 56,194 58,259 57,738 58,835 59,939 62,269
Employee Expenses 23,919 25,657 26,694 27,578 28,498 29,467
% 42.6 44.0 46.2 46.9 47.5 47.3

The Government’s Fiscal Principle Number 6 specifies the growth of the Public Sector (FTE) to be no faster than population and, despite not coming even close to meeting that Principle since it was put in place 2 years ago, the Budget papers would continue to have us believe that forecast growth will not exceed population growth.

Much has been made about a $1.8bn revenue windfall above MYFER forecasts for 17-18. However, for the four years to 2020-21 this projected windfall sums to almost $5bn and yet the projected level of employee expenses doesn’t fall below the previously forecast 47.5% by 2020-21. The reason is simply that employee expenses are now projected to be some $1.5bn higher (over the four years) than forecast in the MYFER (and $4bn higher than the previous Budget projected). Only in 2021-22 do the projections suggest a small decline in this measure; and then only because employee expenses are forecast to have risen just 3.4% that year…they were up 7.3% last year.

This almost-5% increase in the relative cost of employee expenses in the public sector from 2016-17 to 2020-21 dwarfs concerns about interest payments. The State needs to control its single biggest expense item. Fiscal Principle Number 6 is a great objective, but it has no effect if the Government constantly ignore it while promising to abide by it in future years.

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