Australia: Queensland 2018 Budget – Build now, pay later

Queensland Deputy Premier and Treasurer Jackie Trad has delivered her first budget. The centrepiece of the budget is a $45.8 billion infrastructure program over the next four years. Ms Trad argues that this level of investment is necessary now to meet the needs of a growing population and to enable future economic growth. Projects to benefit include Cross River Rail, upgrading the M1 in southern Brisbane and on the Gold Coast, future proofing the Bruce Highway, the Rookwood Weir on the Fitzroy River and rail duplication on the Sunshine Coast.

Ms Trad is unapologetic about the fact that general government sector debt will grow by $11 billion over the next four years to $42 billion and total government debt, including Government Owned Corporations borrowings, will hit $83 billion. She insists that this level of debt is sustainable, with borrowings continuing to track at 10% of Gross State Product (GSP) and the debt interest expense will stay under 3% of revenue.

The credit rating agencies may express some concern at the key fiscal aggregates for 2018-19 and beyond.

The budget includes the new and increased taxes which were announced as part of the Labor Party's pre-election election policy costings. It also includes the already announced waste levy. Revenues are bolstered by continued strength in resource royalties.

Reflecting the coal royalty windfall from a spike in prices (and also reflecting Queensland Treasury's conservative coal price assumptions), there was a net operating balance (or surplus) of $1.512 billion in 2017-18, which is more than $1 billion higher than the forecast in last December's Mid-Year Fiscal and Economic Review. The net operating balance will collapse to an expected $148 million in 2018-19. Budget revenues are estimated to fall slightly in 2018-19, but budget spending grows by 1.5%.

The Queensland economy is forecast to grow by 3% in 2018-19, underpinned by a modest lift in household consumption, business investment and public sector spending and a positive contribution from the overseas export sector. Dwelling investment however is expected to detract from growth. Forecast jobs growth of 1.5% sees the unemployment rate steady at 6.25% in 2018-19, edging back below 6% by 2021-22.


Revenue measures and aggregates

The budget papers reveal the strength of the resource royalty contribution to the budget. Coal royalties are expected to be $3.76 billion in 2017-18 and Treasury expects coal royalties to still be a very strong $3.52 billion in 2018-19 and then fall back to around $2.8-$2.9 billion later in the forward estimates. Petroleum (e.g. coal seam gas) royalty revenue is expected to surge to an estimated $447 million in 2018-19 on the back of stronger oil prices, which in turn lift export gas prices. Metals and other mineral royalties remain a solid contributor at $479 million in 2018-19 and are expected to remain at over $500 million in each year of the forward estimates.

Over the four years of the forward estimates, resource royalties are expected to contribute over $16 billion to funding for essential service delivery in Queensland.

Queensland Treasury have been appropriately conservative on their coal price assumptions. For example, for 2018-19 they assume a hard coking coal price of $US161/tonne compared to the current spot price of around $US200/tonne. There may be some upside on coal royalties but Treasury has wisely held back declaring such a windfall for a rainy day.

Virtually all of Queensland's own-source revenue sources will see growth in 2018-19. Despite the forecast dwelling investment slowdown, transfer duty revenue is expected to grow by 4%, matched by growth in revenue from other duties. There is also expected to be growth in gambling taxes (+9.5%), land tax (+11%) and payroll tax (+5%).

Dividend receipts are expected to fall in 2018-19 and across the forward estimates reflecting the declining contribution from government-owned energy network, energy generation and water businesses.

The State's overall revenue position is dented by a fall of $416 million in GST receipts as the GST distribution formula operates to redistribute part of the lift in Queensland's resources royalties to other States and Territories.

The reintroduced waste levy commences on 1 January 2019 at $70 per tonne of general waste dumped in landfill, moving up in $5 increments to $90 by 2023. The Treasurer says $100 million of the levy proceeds will be directed to programs such as encouraging establishment of waste to energy plants.

In addition to the waste levy, the only new revenue measures were those announced during the election affecting foreign purchases of real property, luxury vehicles and the gaming sector.

The rebate on payroll tax for apprentices and trainees is continued in 2018-19 at a rate of 50%, costing $26 million.

Capital works and infrastructure

The total capital program (include GOCs and capital grants) is $11.583 billion in 2018-19, compared with $10.171 billion in 20176-18. Some highlights in the capital program are set out below:

  • the single largest capital commitment $733 million is to Cross River Rail in 2018-19
  • over the next 5 years the Pacific Motorway will have a $366.5 million upgrade from Eight Mile Plains to Daisy Hill and a $515 million upgrade from Varsity Lakes to Tugun
  • future proofing the Bruce highway will attract $253.5 million over the next three years
  • there is $160.8 million in funding for the Beerburrum to Nambour rail duplication project
  • health portfolio capital works totalling $985.5 million, up by 7%, and there will be $571 million spent over the next 6 years on the Building Better Hospitals program
  • $235 million will be allocated to expanding the State's high school classroom capacity
  • $371 million has been allocated to anew public transport ticketing system
  • $125 million has been allocated towards a new 1500-1700 capacity theatre, to be operated by the Queensland Performing Arts Centre at Southbank in Brisbane
  • $241 million over 5 years for expansion of the Capricorn Correctional Centre near Rockhampton, and
  • $176 million in 2018-19 and 2019-20 for extension of the Cairns Convention Centre.

Other budget expenditure highlights include:

  • an increase of $200 million to $5.5 billion for various government concession programs for energy, transport, health, housing and training
  • $702 million for Queensland Fire and Emergency Services, including funding to meet an election promise on additional frontline firefighters and communication officers
  • a $50 million top-up to the Advance Queensland initiative
  • an extra $11 million to support the economic transition of the North Stradbroke Island community once sand mining ceases in 2019
  • funding for a range of environmental programs including $5.6 million for the government's climate adaptation strategy and $2 million for a container deposit scheme and the ban on single use plastic bags
  • $14 million towards a Queensland Ballet Centre of Excellence, and
  • an additional $20 million for the Jobs and Regional Growth program.


Business will see from this budget and in the next few years a lift in the tempo of investment in public infrastructure. In his two budgets former Treasurer Curtis Pitt had very little room to move on job-creating infrastructure and capital spending. Courtesy of the debt interest savings from the re-direction of funds to the reduction of general government sector debt, Mr Pitt was able to boost capital spending in his third budget. Ms Trad's first budget builds on the 2017-18 capital program but unashamably places greater reliance on funding the program via borrowing in the face of a decline in budget revenues. The Queensland Treasury Corporation would have pointed out to Ms Trad that borrowing costs are at a near all-time low.

Business will of course muse about what action future governments may take to reduce general government sector debt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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