You may not want Queensland, but Queensland wants you

For those Cats who are not residents of Queensland, yesterday’s Queensland budget should worry you and worry you a great deal.

Based on Gross State Product, Queensland is Australia’s 3rd largest state accounting for about 18.2% of the Australian economy in FY17 (between VIC at 23.6% and WA at 13.8%).  So let’s just say that Queensland is systemically important to Australia.

If it is generally agreed that the debts of Australian banks have an implied guarantee from the Commonwealth Government, then it is not much of a stretch to say the same implies to the debts of the states.

So in its budget presentation yesterday, the Queensland Government announced a major spending and debt splurge.  According to Cat Judith Sloan in the Australian:

the Debt Action Plan is going so well that public-sector debt will soar by $13 billion, or nearly 20 per cent, over the next four years.

A 20% debt surge over 4 years!  Is the Queensland government being advised by Wayne Swan and Ken Henry?

And this is underwritten by surging commodity export volumes and prices – you know those evil carbon based energy sources of coal and LNG.  But what happens if there is a shock to commodity prices and or volumes?  Well consider what happened in 2010.

Back in the good old days, with Julia Gillard running the show in Canberra and Anna Bligh running the show in Brisbane, there was a large flood in Queensland.  The consequences were quite significant.  But the economic consequence for Queenslanders were worse than should have been because the Queensland government and Queensland citizens did not properly insure themselves.  And they are still under-insuring themselves.

But did Queensland pay the price for not having proper insurance?  Nope.  Instead, a flood levy that was paid by all Australians and not just Queenslanders was implemented to bail them out.

So what “insurance” is the Queensland government taking out to protect against the risk of commodity market volatility?  None.  Instead they are Jacking up debt and spending.  This is called the Jackie Strategy named after Queensland Treasurer Jackie Trad.  Although fellow Queenslanders Swan and Rudd may have grounds for an intellectual property claim – if you can believe that Rudd-Swan governance was intellectual.

They were from Queensland and they came to fleece the rest of us.

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2 thoughts on “You may not want Queensland, but Queensland wants you

  1. Without conducting my own analysis, which I’m unqualified to do, I would be interested to ask if you have any knowledge of what budgetary risk management strategies the Qld State government has performed in the case of the future negative possibilities. I would venture to suggest, that surely in light of the previous scenarios that you have described, that (hopefully) the current government has realised the possibility of disruptions to the future outcomes and taken measures to mitigate those outcomes. I admit that I haven’t yet viewed the budget papers and are unaware of any preventative measures, only the outcomes about the increase in debt, expenditure and infrastructure spending. Another aspect I would be interested to hear about is if any of the claims by the government spending has been subjected to a cost/benefit analysis of the proposed debt financing. I admit my questioning is merely uniformed and I ask these questions for my own benefit as a resident of the state of Queensland.

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    1. A budget is a political document presented in numbers rather than words. It reflects values and priorities. And this budget suggests that the priorities of the government are to ensure future re-election by creating a stream of dependents whose direct employment will be linked to which government is elected. It also reflects that this government puts more value on today rather than tomorrow by loading up on debt for someone else, or more so the next generation or other people, to worry about.

      What risk management strategies – if they exist, they would only become apparent in the event of crisis. But if history is a guide, the number 1 strategies will be to show up in Canberra with a tin cup.

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