EX-99.(C)(III) 4 d688246dex99ciii.htm EX-99.(C)(III) EX-99.(C)(III)

EXHIBIT (c)(iii)

Budget Papers of the Co-Registrant for 2018-19.


FORWARD-LOOKING STATEMENTS

This exhibit contains forward-looking statements. Statements that are not historical facts, including statements about the State of Queensland’s (the “State” or “Queensland”) beliefs and expectations, are forward-looking statements. These statements are based on current plans, budgets, estimates and projections and therefore you should not place undue reliance on them. The words “believe”, “may”, “will”, “should”, “estimate”, “continue”, “anticipate”, “intend”, “expect”, “forecast” and similar words are intended to identify forward-looking statements. Forward-looking statements speak only as of the date they are made, and neither the Queensland Treasury Corporation nor the State undertake any obligation to update publicly any of them in light of new information or future events.

Forward-looking statements are based on current plans, estimates and projections and, therefore, undue reliance should not be placed on them. Although the Queensland Treasury Corporation and the State believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such beliefs and expectations will prove to have been correct. Forward-looking statements involve inherent risks and uncertainties. We caution you that actual results may differ materially from those contained in any forward-looking statements.

A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statement. Factors that could cause the actual outcomes to differ materially from those expressed or implied in forward-looking statements include:

 

   

the international and Australian economies, and in particular the rates of growth (or contraction) of the State’s major trading partners;

 

   

the effects, both internationally and in Australia, of any subsequent economic downturn, the effect of ongoing economic, banking and sovereign debt risk, and any stalling of the protracted United States recovery;

 

   

increases or decreases in international and Australian domestic interest rates;

 

   

changes in the State’s domestic consumption;

 

   

changes in the State’s labor force participation and productivity;

 

   

downgrades in the credit ratings of the State and Australia;

 

   

changes in the rate of inflation in the State;

 

   

changes in environmental and other regulation; and

 

   

changes in the distribution of revenue from the Commonwealth of Australia Government to the State.


 

Queensland Budget 2018-2019

BUDGET SPEECH

Budget Paper No.1

budget.qld.gov.au

 

LOGO


2018-19 Queensland Budget Papers

1. Budget Speech

2. Budget Strategy and Outlook

3. Capital Statement

4. Budget Measures

5. Service Delivery Statements

Appropriation Bills

Budget Highlights

The Budget Papers are available online at budget.qld.gov.au

© Crown copyright

All rights reserved

Queensland Government 2018

Excerpts from this publication may be reproduced, with appropriate

acknowledgement, as permitted under the Copyright Act.

Budget Speech

Budget Paper No.1

ISSN 1445-4890 (Print)

ISSN 1445-4904 (Online)


LOGO

Appropriation Bill 2018

(First reading speech, 12 June 2018)

The Honourable Jackie Trad MP

Deputy Premier

Treasurer

Minister for Aboriginal and Torres Strait Islander Partnerships

Mr Speaker,

I move that the Bill be now read a first time.

I’m proud today to present the Palaszczuk Labor Government’s fourth Budget.

This is a Budget for all of Queensland.

This is a Budget for all Queenslanders.

From baby Elizabeth Mackenzie – the 5 millionth Queenslander born last month – to the traditional owners on the land on which we stand, the Jagera, Yuggera and Turrbul People.

Whether you live in Brisbane or Blackall.

Labor is doing the things we said we’d do.

No surprises – no excuses.

Queenslanders are living through an era of growth and rapid change.

Our population is one of the fastest growing in the nation.

Technology continues to transform the way we live and work.

The Palaszczuk Labor Government will help our communities to navigate the challenges of change and set a course for the opportunities of growth.

 

1


We will equip our workers on the frontline of a fast-changing world with the skills and support to succeed.

We will encourage innovation and give businesses and industry the confidence to grow.

We will direct every effort to our number one priority – jobs for Queenslanders.

Here’s how.

By delivering the infrastructure, skills and services that our strong, diversified economy needs.

By including everyone in the benefits regardless of who you are or where you live.

That is our strategy for this State.

That is the job for this Government.

That is the plan in the Budget I deliver today.

We begin with the largest capital works program since the 2011 flood recovery.

Building the infrastructure for a productive, strong and sustainable economy.

Supporting growth without compromising our quality of life.

Delivering jobs in construction today and supporting the jobs of the future.

Mr Speaker, this Queensland Government must do the heavy lifting in infrastructure investment because this Federal Government simply will not.

And this Labor Government must keep repairing the damage inflicted by the last LNP Government’s savage cutbacks to frontline services.

More doctors, nurses, teachers, police and firefighters.

The people who work so hard delivering excellent essential services every day.

The professionals who educate our kids, keep Queenslanders healthy and protect our communities from harm.

More infrastructure, better services – this is what we said we would do.

Budget outcome

Mr Speaker, Queensland’s economy has grown by 7.2 per cent in real terms since December quarter 2014.

Today, I can announce that we expect a surplus of $1.512 billion in 2017-18 – more than three times the size of the Mid-Year Fiscal and Economic Review forecast.

The Budget also forecasts operating surpluses over the forward estimates, starting with $148 million in 2018-19.

 

2


And economic growth is forecast to accelerate from 2.5 per cent in 2016-17 to 3 per cent by 2018-19.

Our responsible budget management is part of this success story, but it would be impossible without our job generating initiatives that build business confidence and open up opportunities for growth and investment.

This is a time of growth – and it is also a time of change.

The Queensland economy continues to successfully shift from the big economic gains of a never before seen resource boom that brought with it massive investment, big infrastructure and jobs and wages growth.

Business investment is rebounding following the construction of the liquefied natural gas infrastructure.

It’s supported by a range of renewable energy projects that will be a key driver of economic growth.

We are rolling out a nation-leading renewable energy industry with an estimated $4.2 billion pipeline of projects underway or financially committed across the State.

This Budget delivers surpluses, builds new infrastructure, grows the State’s skills and expands our services – all to support a growing and changing State.

Creating jobs, delivering infrastructure

Queensland now has the second highest annual employment growth rate in the country.

Employment growth is forecast to strengthen to 234 per cent over the year to June quarter 2018, the strongest growth in more than a decade.

More than 150,000 jobs have been created since we came to Government. That’s equivalent to almost 4000 new jobs in Queensland every month since January 2015.

These are big numbers – but behind these numbers are people.

Queenslanders who now have a place in our economy and hope for the future.

And in this Budget - through our $45.8 billion infrastructure pipeline over the next four years – Queenslanders will continue to have a place in our economy.

It’s an increase of more than $3 billion on last year’s Budget – directly supporting 38,000 jobs this year alone.

Our plan means tens of thousands of additional jobs each year, and our plan means building the essential infrastructure to meet the needs of our fast-growing State.

From the Cairns Convention Centre to Cross River Rail, the M1 and Bruce Highway upgrades to Rookwood Weir and Townsville Stadium we are delivering the right projects, in the right place, at the right time.

 

3


Building the economy of the future

Rapid change all around us means Queensland must become a more diverse and productive economy.

Securing our modern industries and creating jobs that will be there for years to come.

To do that, this Budget invests in innovation and anticipates areas of emerging opportunity.

Let’s take the example of the waste disposal levy announced earlier this year.

We will not allow Queensland to be a dumping ground for interstate waste – we all saw this when the LNP’s short-sightedness in removing the levy led to a procession of dump trucks across our border.

But this measure is also an opportunity to invest in new and emerging industries and technology.

And today I am announcing a $100 million down payment over the next three years into a new Resource Recovery Industry Development Program.

This initiative will support innovation and investment in recycling and help new industries that manufacture products using recycled waste and create future jobs.

There’s also the Palaszczuk Government’s flagship Advance Queensland strategy.

Advance Queensland keeps turning good ideas into commercial reality.

We are backing business and industry to help give them an edge in a highly competitive world.

So, in this Budget, we are investing a further $123 million in backing our entrepreneurs, funding industry research fellowships and helping small to medium businesses innovate, grow and create jobs.

And, Mr Speaker, there’s the Industry Attraction Fund.

As well as supporting our home-grown businesses in the path to success we want to attract new businesses and knowledge industries from interstate and overseas.

I want these businesses, their ideas and above all their jobs to call Queensland home.

That’s why this Budget extends the Fund with $40 million over two years towards bringing interstate and international businesses here and helping locally-based businesses expand.

The Business Development Fund, which turns ideas into commercial reality, will also be extended with $40 million over the next two years.

And a further $20 million for the Jobs and Regional Growth Fund brings new funding to $100 million.

We want the new jobs in these new industries and businesses hiring skilled Queensland workers.

So, in this Budget, we are investing $175.5 million to help people return to the workforce through the Back to Work program.

And we will deliver a further $180 million in the Skilling Queenslanders for Work program to deliver more training opportunities and workforce participation.

 

4


Supporting small business

Like others in this Parliament, I grew up in a family that ran a small business.

My family felt the pressures, the strains, the setbacks, but also reaped the rewards.

I’m proud to be in a Government that backs small business.

We need to give employers the confidence to invest in the workforce they need to succeed.

That’s why today I am announcing that the 50 per cent payroll tax rebate scheme will be extended to June 2019 supporting up to 26,000 apprentices and trainees.

Our Buy Queensland approach also ensures local businesses, jobs and better social outcomes are all front and centre when taxpayer dollars are spent.

The ecoBiz program for small to medium businesses provides increased funding of $3.9 million over four years to help them identify and achieve savings and eco-efficiencies across energy, water and waste.

The challenge of moderate wage growth

Our economic plan – more infrastructure, better skills – will create jobs, lift demand for labour, and help support wages growth in the medium and longer term.

Mr Speaker, I was pleased to see the Fair Work Commission recently decided to increase the national minimum wage by 3.5 per cent.

But while we are more productive than we were just 10 years ago modest wage growth is putting households under strain.

Hard working Queensland families who battle through each day are not keeping up – something we simply can’t ignore.

This has a broader economic impact too.

Modest wage growth constrains growth in household income, one of the key drivers of household consumption.

As a result, employment and businesses suffer.

We need to see stronger private sector wage growth.

This Budget will make a difference.

Supporting growth throughout Queensland

It doesn’t matter where you are you must have the right transport and road infrastructure.

The alternative is more Queenslanders sitting in traffic away from their job or away from their kids – we either allow congestion to build or we build the infrastructure we need.

In a fast-growing state, investing in key infrastructure supports job creation, it boosts business confidence and it delivers the services Queenslanders need to maintain our way of life.    

 

5


Our delivery of the $5.4 billion Cross River Rail project recognises this.

Sadly, the Federal Government and those opposite don’t.

During the five-year construction period, Cross River Rail will support an average of 1,500 jobs each year, and up to 3,000 jobs in the most intensive year of construction.

I am pleased to say that today’s Budget also includes an investment of $21.7 billion over the next four years in the Queensland Transport and Roads Investment Program (QTRIP).

This is the third year in a row the Palaszczuk Government has made a record investment in road and transport infrastructure and is an increase of around $700 million on last year’s commitment.

Supporting regional Queensland

We know that Queensland is the most decentralised state in Australia with some of the country’s largest cities and important economic zones outside the South East corner.

We also know that we don’t have a strong Queensland without Strong Regions.

That’s why 65 per cent of our infrastructure spend this year is outside the Greater Brisbane area.

We will build key infrastructure like Rookwood Weir, Cairns Convention Centre and Townsville Stadium.

Through QTRIP we’re investing more than $800 million for works in our State’s West.

The Works for Queensland program supports job creating maintenance and minor works across our regions in partnership with local Councils.

This Budget provides more than $200 million over three years to extend the fund.

We also commit up to $34.6 million to continue drought relief this year. And more than $19 million over three years for rural and regional programs that support jobs and drive economic development.

Give all our children a great start

This Budget delivers for the economy and jobs, industry and regions.

It is a Budget of the head – but it is also a Budget of the heart.

And at the heart of any Labor Budget is education.

Education is fundamental to every public good that progressive politics values.

Equality of opportunity, fairness, skills for the economy today, rewarding work in the future, human progress and knowledge itself.

None of this is possible without leadership, imagination, investment and reform in schools.

This Budget makes a record education and training investment of more than $14 billion this year.

Since March 2015, we have employed more than 4,700 extra teachers and teacher aides.

 

6


We said we would employ 3,700 additional teachers over four years.

In this Budget we do it.

We will upgrade and improve schools across the State with a further $308 million to the Building Future Schools fund – bringing the total investment to $808 million.

There will be new high schools at Coomera, Yarrabilba, Ripley and Mango Hill, a new primary school at Ripley and a new special school at Caboolture.

We will also refurbish, upgrade or improve more than 48 state primary and high schools.

We will redevelop TAFE facilities in Townsville, Cairns, Mount Gravatt, Toowoomba, the Gold Coast and the Redlands with an investment of up to $85 million over three years.

Mr Speaker, even before their first day in the classroom, Queensland kids benefit from developing a love of reading from an early age.

As a parent, I know and understand that one of the greatest gifts you can give your child even before they enter the Prep classroom is a love of reading – it sets a child up for life.

But I also know that not every parent has the skills or resources to pass on this gift.

That’s why the First 5 Forever program – which links parents of kids under five to resources at public libraries across the State – matters so much.

So, in this Budget, we invest $20 million over four years to continue the First 5 Forever program’s vital work.

Keeping Queenslanders healthy

This is a Budget for all Queensland, and a Budget for all Queenslanders.

Our people, whatever their age, wherever they live, should be able to get the healthcare they need.

This Budget provides a record $17.3 billion operating Budget for Queensland Health, and $985 million in capital investments to deliver first-class health services and facilities for Queenslanders.

Since March 2015, this Government has been rebuilding frontline health services savaged under the LNP.

We have employed more than 4,800 extra nurses, 1,600 doctors and 370 ambulance officers.

But it’s not just enough to repair the LNP’s damage, we must create excellent and responsive services for Queenslanders when they need it most – when they need hospital care.

We are building better hospitals, health facilities and emergency departments.

… including in Hervey Bay and Gladstone, Roma, Blackall, Kingaroy and Maryborough;

… with planned redevelopments at Logan, Caboolture and Ipswich Hospitals;

 

7


… and a new adolescent mental health facility at the Prince Charles Hospital in Brisbane.

These investments are working.

Services are improving.

We are making the positive changes to help patients make the most of a modern healthcare system.

We said we would employ an additional 400 nurse navigators to help Queenslanders navigate the often complex system of tertiary health care.

This Budget does just that.

We said we would employ an extra 100 midwives to help birthing mothers with the life changing event of bringing a baby into this world.

This Budget does just that.

Keeping our communities safe

Mr Speaker, our frontline heroes work to keep our communities safe every day and every night.

This Budget gives Queensland more police, domestic violence officers and firefighters.

We said we would add 400 officers to areas of need across Queensland over the next four years.

This Budget does that.

In a world where keeping us safe requires cutting edge support, we are investing in a Police Security and Counter-Terrorism Command, training for 85 new counter terrorism officers and specialists, and building the Counter Terrorism and Community Safety Training Centre at Wacol.

In times of natural disaster, Queenslanders know they can count on our world-renowned emergency service workers.

So, in this Budget, I announce more than $103million to deliver on our election commitment of 100 additional firefighters over the next four years, and new firefighting equipment and upgraded emergency services facilities; this is to ensure that in our disaster-affected State our fire and emergency responses remain second to none.

Protecting the Great Barrier Reef

This Government knows we need to take action now to protect our environment for the future.

The Great Barrier Reef is a natural wonder of staggering beauty.

It is also an invaluable asset when it comes to our future economic prosperity.

The Reef must survive.

We must clean up the water running into the Reef and continually invest in the science and research that will help better protect the ocean.

 

8


That’s why this Budget makes a record investment of $330 million over five years to protect the Reef.

No greater asset needs our protection than our Great Barrier Reef.

That’s why the Palaszczuk Labor Government banned dumping of dredge spoil in the Caley Valley Wetlands and at sea within the World Heritage Area.

That’s why we’ve created the net-free free fishing zones – in Cairns, Rockhampton and Mackay – to protect sensitive eco-systems and prohibited port development within the Fitzroy River Delta.

That’s why we reinstated our nation-leading laws to stop tree clearing in Great Barrier Reef catchments and right across our State.

And that’s why we established the Great Barrier Reef Water Science Taskforce.

Future funding decisions to save the Great Barrier Reef will be steered by science – not poisoned by politics.

Growing tourism

The preservation of our State’s natural beauty is directly linked to the success of one of our economic powerhouses – tourism.

People from all over the world travel great distances to come here to enjoy our unique experiences and natural encounters that we, Queenslanders, have in our own backyard.

This Budget invests an additional $94.6 million over five years under the Growing Tourism, Growing Tourism Jobs initiative.

This includes more than $48 million for the Attracting Tourism Fund – which provides incentives to attract new international airline routes and cruise ships.

It includes $46 million for the Regional Tourism Infrastructure and Experience Development program and Outback Tourism Infrastructure Fund to help communities grow tourism.

A further $2.2 million over two years will expand and refurbish the Australian Workers Heritage Centre at Barcaldine.

There is no doubt that investment in tourism and events is vital for our future economic success and delivers long term benefits.

Our Commonwealth Games in April this year was so much more than 11 days of sport before a global audience.

It created the impetus for additional Government and private sector investments of more than $2.6 billion.

It will also leave a positive legacy of better transport, and better sports and community facilities that will last for decades.

In Brisbane, right now, we have game-changing developments that will not only generate jobs and support economic growth but fundamentally reshape our capital and position it as a modern, global destination of choice.

 

9


Queens Wharf, the proposed Eagle Street Pier, Howard Smith Wharves and Brisbane Live projects can build a city that is a beacon of sustainable progress in a modern economy.

We will work with the private sector every step of the way to see these projects to success.

Brisbane’s cultural precinct, already one of the best in the country, will be enhanced even further with $125 million towards a new theatre at the Queensland Performing Arts Centre.

It is the largest arts infrastructure investment since GOMA.

A responsive Government

Mr Speaker, Labor Governments help out those doing it tough.

We understand Queenslanders in need are feeling cost of living pressures.

Government has a responsibility to help and we will do just that.

As part of our commitment to reduce cost of living impacts on households and small business the Budget provides $5.6 billion in concessions – an increase of $200 million on last year.

And Labor Governments right past wrongs.

We will join the National Redress Scheme – a key recommendation of the Royal Commission into Institutional Responses to Child Sexual Abuse.

While no amount of money can ever return a lost childhood, our commitment of more than $500 million will support healing and recovery.

And Mr Speaker, we know we must continue the job of Reconciliation with Australia’s First Nations People and increase our efforts to close the gap in health, education and life outcomes between Indigenous and non-Indigenous Queenslanders.

Fundamental to closing the gap is a roof over your head.

Without that you can’t address poor health or literacy outcomes.

That’s why it was particularly heartless that the Federal Government decided to walk away from a 50-year tradition of funding housing in remote Indigenous communities in Queensland.

We will work hard to close the gap, supporting our Aboriginal and Torres Strait Islander communities.

And that’s why I announce that this Budget will invest $239 million to improve housing options for Aboriginal and Torres Strait Islander Queenslanders.

 

10


Conclusion

Mr Speaker, whether you are in Biloela or Brisbane, Caloundra or Cunnamulla, Lockhart River or Logan – this Budget delivers for all of Queensland.

We said we would build more infrastructure and deliver better services.

We said we would grow jobs and steer the economy through change.

We said we would deliver for the whole of Queensland and every Queenslander.

We said we had plans for education and health, community safety and communities in need, for the Great Barrier Reef and tourism.

This is a Budget for prosperity.

Today, we deliver for our economy’s future.

This is a Labor Budget.

Today, we deliver fairness.

This is a Queensland Budget.

Today, we deliver for Queenslanders.

I commend the Bill to the House.

 

11


Queensland Budget 2018-19  Budget Speech  Budget Paper No.1


LOGO

Queensland Budget 2018-19

Budget Speech Budget Paper No.1

budget.qld.gov.au


 

Queensland Budget 2018-19

BUDGET STRATEGY AND OUTLOOK

Budget Paper No.2

budget.qld.gov.au

 

LOGO


2018–19 Queensland Budget Papers

1. Budget Speech

2. Budget Strategy and Outlook

3. Capital Statement

4. Budget Measures

5. Service Delivery Statements

Appropriation Bills

Budget Highlights

The Budget Papers are available online at budget.qld.gov.au

© Crown copyright

All rights reserved

Queensland Government 2018

Excerpts from this publication may be reproduced, with appropriate

acknowledgement, as permitted under the Copyright Act.

Budget Strategy and Outlook

Budget Paper No.2

ISSN 1445-4890 (Print)

ISSN 1445-4904 (Online)


Budget Strategy and Outlook 2018-19

 

 

LOGO

 

 

State Budget

2018-19

 

 

Budget Strategy and Outlook

Budget Paper No. 2

 

 


Budget Strategy and Outlook 2018-19

 

 

Contents

 

Overview

     1  

1

   Economic plan – creating jobs and prosperity in a growing Queensland      7  

1.1

   Key elements of the economic plan      8  

1.2

   Increasing the economic opportunities available to Queenslanders      10  

1.3

   Enhancing the capacity of Queenslanders to access and capitalise on opportunities      18  

1.4

   Ensuring all Queenslanders share in the increased prosperity and quality of life      20  

2

   Economic performance and outlook      22  

2.1

   International conditions      23  

2.2

   National conditions      24  

2.3

   Queensland conditions and outlook      24  

3

   Fiscal strategy and outlook      34  

3.1

   Context      35  

3.2

   Key fiscal aggregates      35  

3.3

   Fiscal strategies      37  

3.4

   Achievement of fiscal principles      48  

4

   Revenue      50  

4.1

   2017-18 estimated actual      51  

4.2

   2018-19 revenue by category      52  

4.3

   2018-19 Budget initiatives      53  

4.4

   Queensland’s revenue trends      54  

4.5

   Taxation revenue      55  

 

 


Budget Strategy and Outlook 2018-19

 

 

4.6

   Grants      60  

4.7

   Royalty revenue      62  

4.8

   Sales of goods and services      66  

4.9

   Interest income      67  

4.10

   Dividend and income tax equivalent income      67  

4.11

   Other revenue      68  

5

   Expenses      69  

5.1

   2017-18 estimated actual      69  

5.2

   2018-19 Budget and out-years      70  

5.3

   Expenses by operating statement category      71  

5.4

   Operating expenses by purpose      80  

5.5

   Departmental expenses      81  

6

   Balance sheet and cash flows      84  

6.1

   Context      84  

6.2

   Balance Sheet      85  

6.3

   Cash flows      91  

7

   Intergovernmental financial relations      92  

7.1

   Federal financial arrangements      93  

7.2

   Australian Government funding to the states      95  

7.3

   Australian Government funding to Queensland      96  

7.4

   GST revenue payment      97  

7.5

   Payments to Queensland for specific purposes      99  

7.6

   State-local government financial relations      104  

8

   Public Non-Financial Corporations Sector      107  

8.1

   Context      108  

 

 


Budget Strategy and Outlook 2018-19

 

 

8.2

   Finances and Performance      115  

9

   Uniform Presentation Framework      123  

9.1

   Context      123  

9.2

   Uniform Presentation Framework financial information      123  

9.3

   Reconciliation of net operating balance to accounting operating result      133  

9.4

   General Government Sector time series      133  

9.5

   Other General Government uniform presentation framework data      135  

9.6

   Contingent liabilities      138  

9.7

   Background and interpretation of uniform presentation framework      139  

9.8

   Sector classification      141  

9.9

   Reporting entities      142  

Appendix A: Concessions statement

     145  

A.1 Concessions summary

     147  

A.2 Concessions by agency

     148  

A.3 Concessions by entity – Government-owned Corporations

     173  

Appendix B: Tax expenditure statement

     175  

The tax expenditure statement

     176  

Discussion of individual taxes

     178  

Appendix C: Revenue and expense assumptions and sensitivity analysis

     181  

Taxation revenue assumptions and revenue risks

     182  

Royalty assumptions and revenue risks

     183  

Sensitivity of expenditure estimates and expenditure risks

     184  

Appendix D: Fiscal aggregates and indicators

     185  

 

 


Budget Strategy and Outlook 2018-19

 

 

Overview

The 2018-19 Budget delivers on the commitments made by the Palaszczuk Government and will deliver the infrastructure to create jobs and the services that our State’s growing population needs.

The key initiatives outlined in the 2018-19 Budget align with the Palaszczuk Government’s clear economic plan to drive economic growth, create more jobs and improve prosperity by:

 

 

increasing the economic opportunities available to Queenslanders

 

 

enhancing the capacity of Queenslanders to access and capitalise on these opportunities

 

 

ensuring all Queenslanders share in the prosperity and improved quality of life these opportunities deliver.

Delivering infrastructure

With the State’s population growing over recent decades to more than five million, the Government’s $45.8 billion capital works program over the four years to 2021-22 will support the ongoing delivery and facilitation of key economic and social infrastructure to meet the needs of Queensland families, businesses and communities.

The Government’s substantial infrastructure investment directly generates significant employment during the construction phase. More importantly, it creates future jobs, encourages private sector investment and increases the productivity, efficiency and competitiveness of the State’s businesses and industries.

The $11.6 billion capital works program in 2018-19 is estimated to directly support more than 38,000 jobs.

Importantly, to meet the needs of Queensland’s growing population, the Government’s 2018-19 capital works program includes a $4.9 billion investment in roads and transport infrastructure. This includes an allocation of $733 million for the Cross River Rail Delivery Authority in 2018-19 to continue to progress the planning, procurement and development associated with the $5.4 billion Cross River Rail project. In addition, $200 million will be spent to widen the Bruce Highway from four to six lanes between Caloundra Road and the Sunshine Motorway and $22 million in 2018-19 will be spent on two new jointly-funded M1 Pacific Motorway projects. These two new projects have a total cost of approximately $1.8 billion.

The 2018-19 capital program also includes significant capital purchases related to health ($985.5 million) and education ($674.3 million), as well as substantial investment in housing, justice and public safety infrastructure. Significant capital investment in the energy and water portfolios in 2018-19, of $2.2 billion and $277 million respectively, will help deliver cost effective, safe, secure and reliable energy and water supply across the State.

Other highlights of the 2018-19 capital program include:

 

 

$534.3 million to continue the Toowoomba Second Range Crossing project

 

 

$115 million to construct the Mackay Ring Road (Stage 1)

 

 

1


Budget Strategy and Outlook 2018-19

 

 

 

$125.2 million for new classrooms and other infrastructure in state secondary schools to accommodate six full cohorts in 2020

 

 

$94.5 million to further address enrolment growth pressures in state schools as part of the Building Future Schools fund

 

 

$28.7 million as part of $679 million for the Building Better Hospitals program, to redevelop Logan, Caboolture and Ipswich hospitals, commence planning and business case development for the Wide Bay Burnett region, and refurbish three Cancer Council Queensland lodges

 

 

$339.1 million towards the construction and upgrade of the social housing stock.

Across the State, the Government’s investment in public infrastructure will drive transformative change, encourage private investment and make our communities better places to live.

Skill and jobs creation programs

The Palaszczuk Government remains committed to ensuring all Queenslanders have the skills and opportunities to participate and prosper in the State’s economy.

The formation of the Department of Employment, Small Business and Training demonstrates this commitment and creates significant opportunities to achieve policy and service delivery synergies in driving small business growth and enhancing the employment, skills and training opportunities available to Queenslanders.

The $369 million Back to Work initiative is designed to give Queensland employers the confidence to hire eligible jobseekers. Support payments of up to $20,000 are available for eligible employers, with funding committed across regional Queensland and targeted areas of South East Queensland for applications received by 30 June 2020.

The Skilling Queenslanders for Work initiative continues to be a key element of the Government’s focus on employment, training and skills development, with a further $180 million committed over three years in the 2017-18 Mid-Year Fiscal and Economic Review. Through a suite of targeted skills and training programs, this funding supports skills development, training, and job opportunities for unemployed, disengaged or disadvantaged Queenslanders.

Increasing frontline services

This Budget delivers the services that Queenslanders rely on. Since March 2015, an additional 3,634 teachers and 1,135 teacher aides have been employed to provide our children the best possible start. As part of the Government’s focus on ensuring effective and better delivery of health services an additional 1,605 doctors, 4,828 nurses, and 1,488 health practitioners, professionals and technical staff have been employed. An additional 376 ambulance paramedics and 302 police officers have also been employed.

In addition to the increase in frontline services over the last three years, the Palaszczuk Government has committed to employing an additional 3,700 teachers over the next four years at an estimated cost of $1 billion. Further, consistent with its election commitment, the Government will add 3,500 new nurses, midwives and nurse navigators over four years.

The 2018-19 State Budget delivers significant funding for a range of new and ongoing initiatives.

 

 

2


Budget Strategy and Outlook 2018-19

 

 

These include:

 

 

an additional $171.9 million over four years for 400 police officers in high priority areas and $55.1 million over four years for 85 counter-terrorism officers and operational specialists and to establish a Security and Counter-Terrorism Command. This builds on the investment in the 2017-18 Budget for an additional 30 counter-terrorism police officers and 20 police officers, bringing total additional frontline police and operational specialists in priority areas across the State to 535

 

 

funding of $29.5 million over four years for an additional 100 firefighters and 12 fire communication officers to help the community prevent, prepare for, respond to and recover from the impact of fire and emergency events.

Promoting private sector investment

Driving and facilitating private sector investment is crucial, given the private sector accounts for more than 70% of total investment in the economy and supports 83% of Queensland jobs. Through its flagship Advance Queensland initiative totalling $650 million, the Queensland Government maintains a strong focus on fostering innovation and entrepreneurship to enable Queensland businesses to adapt rapidly to the ever-changing global business environment.

The Palaszczuk Government is also delivering a range of industry attraction and facilitation services to promote private sector investment. The 2018-19 Budget provides additional funding for both the Advanced Queensland Industry Attraction Fund and the Jobs and Regional Growth Fund, bringing the combined total funding for these programs to $255 million.

Protecting the Great Barrier Reef

Queensland’s Great Barrier Reef is not only one of the natural wonders of the world, but one of the major reasons local, interstate and international visitors come to Queensland. More than 18 million visitors travel to the broader Great Barrier Reef region. To support the reef and manage the impacts of climate change, the Palaszczuk Government is investing $330 million over five years to protect our national treasure and ensure it continues to provide economic benefits now and into the future. Protecting the Great Barrier Reef is vital not just for the environment and tourism, but also to meet international commitments.

The 2018-19 State Budget allocates $40 million in new funding to significantly increase our State’s financial contribution to protecting the reef. Part of this $40 million will include $26 million in extra funding over the next four years for the Joint Field Management Program for reef protection measures. This is on top of the more than $35 million already invested in this program. In addition, a further $13.8 million over the next four years will be allocated to extend the Queensland Reef Water Quality Program to support the transition of graziers, and sugarcane and banana growers to improved practices through access to professional advice.

Waste Strategy – Driving business investment, innovation and jobs

The Queensland Government’s comprehensive waste management strategy, underpinned by a waste disposal levy, will be instrumental in changing waste management practices in the State.

By discouraging the interstate transport of waste and encouraging alternatives to disposal of waste to landfill, the waste disposal levy will significantly boost certainty for investment in job-creating reuse, recycling, bioproducts and waste to energy industries.

 

 

3


Budget Strategy and Outlook 2018-19

 

 

Proceeds from the waste levy will be used for waste programs, environmental priorities and community purposes. In particular, $100 million will be allocated over three years to support Queensland’s resource recovery and recycling industry through the Resource Recovery Industry Development Program. The program will facilitate private sector and local government projects delivering innovative solutions to the problem of waste going to landfill and will create jobs in emerging industries.

In order to avoid direct costs to households from the introduction of the waste levy, the Government will provide an annual advance on levy charges to those local governments that dispose of municipal waste in the levy zone. In 2018-19, $32 million has been provided for this purpose.

A recent independent study has highlighted the significant employment and economic benefits resulting from the waste strategy. The study found that the introduction of a waste levy will promote a reduction of waste generation and increase the diversion of waste to higher-value waste recovery and recycling industries. Combined with other key elements of the waste strategy, the levy will support new jobs in the waste industry over the long-term.

Economic Outlook

Overall growth in the Queensland economy is expected to strengthen to 234% in 2017-18, reflecting further improvement in domestic demand as business spending has rebounded along with a recovery in coal exports following Severe Tropical Cyclone (STC) Debbie.

Growth in gross state product (GSP) is forecast to accelerate further to 3% in 2018-19, with household consumption gaining some momentum and a contribution to growth from the trade sector as imports ease.

While domestic activity is forecast to strengthen in 2019-20 and support stronger jobs growth, it will also boost imports. Combined with a moderation in export growth, this is expected to constrain the overseas trade sector’s contribution to growth and result in overall growth easing to 234% in 2019-20. From 2020-21, Queensland GSP is expected to grow by 234% per annum, consistent with the State’s long-run potential.

While employment growth has eased in early 2018, the stronger than expected gains in late 2017 means growth over the year to June quarter 2018 is estimated to be 234%, the strongest jobs growth in a decade.

Employment growth is expected to return to more sustainable rates of 112% in 2018-19 and 134% in 2019-20, when it will be stronger than that forecast nationally. While designed to help meet the demands of the State’s growing population, the Palaszczuk Government’s $45.8 billion capital works program will also provide considerable support to employment in Queensland across the forecast period.

Additional jobseekers encouraged by stronger employment growth has seen the participation rate rise sharply and the unemployment rate stabilise in the short-term, with the unemployment rate forecast to remain at 614% in June quarter 2018 and 2019. However, stronger domestic activity is expected to see the unemployment rate fall to 6% by June quarter 2020.

 

 

4


Budget Strategy and Outlook 2018-19

 

 

Overview Table 1

Queensland economic forecasts/projections1

 

     Actual      Est. Act.      Forecasts      Projections  
     2016-17      2017-18      2018-19      2019-20      2020-21      2021-22  

Gross state product2

     2.5        234        3        234        234        234  

Nominal gross state product

     9.3        512        4        334        412        434  

Employment3

     1.8        234        112        134        134        2  

Unemployment rate4

     6.2        614        614        6        6        534  

Inflation5

     1.7        134        2        212        212        212  

Wage Price Index5

     1.9        214        212        3        3        3  

Population5

     1.5        134        134        134        134        134  

Notes:

 

1.

Unless otherwise stated, all figures are annual percentage change.

2.

Chain volume measure (CVM), 2015-16 reference year.

3.

Through-the-year growth rate to the June quarter (seasonally adjusted).

4.

Seasonally adjusted rate for the June quarter.

5.

Annual percentage change, year-average.

Sources: ABS 3101.0, 6202.0, 6345.0, 6401.0 and Queensland Treasury.

Fiscal Outlook

The 2018-19 Budget supports the delivery of the Government’s election commitments and provides additional policy measures focussed on supporting the delivery of services to the Queensland community. The election commitments are funded from reprioritisation measures and the targeted revenue measures announced during the 2017 election.

The Government is committed to delivering the services and infrastructure the community needs in a financially sustainable manner. Net operating surpluses are projected in each year of the forward estimates, despite an expectation that revenue will decline in 2018-19 driven by a substantial reduction in funding from the Australian Government. Operating expenses are forecast to grow at a sustainable rate, averaging 2.9% per annum over the five years to 2021-22.

A $45.8 billion capital program over four years, including $33.2 billion in the General Government sector, will deliver infrastructure that supports economic growth, enhances productivity, provides employment opportunities and manages the pressures of strong population growth. This level of investment will be partly funded through borrowings. Even so, General Government borrowings are expected to be lower in each year of the forward estimates than projected in the 2017-18 Budget. In 2021-22, it is expected the General Government borrowings will remain below the peak level reached in 2014-15.

The Government will continue to provide additional funds for infrastructure investment while responsibly managing debt. This is being achieved while retaining strategic assets, such as electricity, port, rail and water businesses, in public ownership.

 

 

5


Budget Strategy and Outlook 2018-19

 

 

Overview Table 2

General Government Sector – key fiscal aggregates1

 

     2016-17
Actual2
$ million
     2017-18
MYFER
$ million
    2017-18
Est. Act.
$ million
    2018-19
Budget
$ million
    2019-20
Projection
$ million
    2020-21
Projection
$ million
    2021-22
Projection
$ million
 

Revenue

     56,194        56,464       58,259       57,738       58,835       59,939       62,269  

Expenses

     53,373        55,980       56,747       57,590       58,675       59,829       61,579  

Net operating balance

     2,821        485       1,512       148       160       110       690  

PNFA3

     4,634        4,965       4,905       5,927       7,557       7,396       7,081  

Fiscal balance

     536        (1,681     (604     (3,033     (3,881     (3,400     (2,636

Net Worth

     194,936        198,268       199,686       202,636       205,775       208,101       210,515  

Borrowing

     33,260        32,502       31,367       32,311       35,861       39,588       42,290  

Borrowing (NFPS)4

     71,904        71,222       69,501       70,871       75,214       79,750       83,093  

Notes:

 

1.

Numbers may not add due to rounding. Bracketed numbers represent negative amounts.

2.

Reflects published actuals.

3.

PNFA: Purchases of non-financial assets.

4.

NFPS: Non-financial Public Sector.

 

 

6


Budget Strategy and Outlook 2018-19

 

 

1

Economic plan – creating jobs and prosperity in a growing Queensland

Features

 

 

The Palaszczuk Government’s commitment to improve the quality of life and living standards enjoyed by Queenslanders continues to be underpinned by its clear economic plan to drive economic growth, create more jobs and improve prosperity.

 

 

The key initiatives outlined in the 2018-19 Budget, including the suite of election commitments, will continue to drive economic growth and create jobs by:

 

   

increasing the economic opportunities available to Queenslanders

 

   

enhancing the capacity of Queenslanders to access and capitalise on these opportunities

 

   

ensuring all Queenslanders share in the prosperity and improved quality of life these opportunities deliver.

 

 

To create the economic growth and job opportunities needed to support Queensland’s growing population, the Government’s economic plan includes a $45.8 billion investment in productivity-enhancing capital works over the four years to 2021-22.

 

 

In addition to flagship projects such as the Cross River Rail, Cairns Convention Centre, upgrades to the M1 motorway and Townsville Stadium, a range of other essential regional projects will be fast-tracked through the Growth Area and Regional Infrastructure Investment Fund while building key social infrastructure to support improved health and education outcomes.

 

 

Ongoing and increased funding for key employment and training programs will help provide Queensland jobseekers, including the State’s youth, with the skills and capabilities to access additional job opportunities.

 

 

Meanwhile, significant funding for initiatives to further protect the Great Barrier Reef and the environment will ensure current and future generations of Queenslanders continue to enjoy the increased prosperity and quality of life that has attracted almost two million migrants to the State over the past three decades.

 

 

The $11.6 billion capital works program in 2018-19 outlined in this Budget is estimated to directly support more than 38,000 jobs in 2018-19, as well as support significant ongoing private sector investment and employment over the short, medium and long term.

 

 

7


Budget Strategy and Outlook 2018-19

 

 

1.1

Key elements of the economic plan

The Queensland Government remains committed to creating increased opportunities and prosperity for all Queenslanders. As outlined in each of the Government’s previous budgets since 2015-16, this commitment is underpinned by a clear and comprehensive economic plan to drive economic growth, create more jobs and enhance living standards.

In line with the key objectives of the Government’s economic plan, Queensland has recorded significantly improved economic outcomes in recent years, with economic growth expected to strengthen to 234% in 2017-18 and strengthen further to 3% in 2018-19. This growth has also directly resulted in increased employment opportunities across the State, with more than 83,500 new jobs created in Queensland over the 12 months to April 2018.    

Despite these achievements, an ongoing focus on building the productive capacity and resilience of the State’s traditional, emerging and new industries is critical to maintain this economic momentum and support the ongoing prosperity of Queensland families, communities and regions.

As a modern, open trading economy, Queensland continues to be susceptible in the short to medium term to changes in international economic conditions.    

Some key areas of regional Queensland continue to successfully transition to the post mining and LNG investment boom economy, while some regions and industries are still recovering from the impacts of natural disasters and continue to be impacted by drought.

With the State’s population growing over recent decades to more than five million, ongoing delivery and facilitation of key economic and social infrastructure, as well as essential social services, will remain a key element of the Government’s plan to drive ongoing improvements in the quality of life enjoyed by families and communities across the State. Further, longer term global trends, such as climate change, the rapid pace of technological advancements and demographic change, will continue to present both risks and opportunities.

A continued focus on building a strong, resilient and flexible economy and labour force is critical to ensure Queensland businesses, industries and regions are capable of responding to any challenges and capitalising on any opportunities as they arise now and in the future.

The 2018-19 Budget continues to reinforce the Government’s commitment to driving sustainable economic growth and improving employment outcomes.    

The $11.6 billion capital works program in 2018-19 outlined in this Budget is estimated to directly support more than 38,000 jobs in 2018-19, as well as support significant ongoing private sector investment and employment over the short, medium and long term. Key elements of the Budget will also help facilitate growth of private sector business investment and the increased participation of Queensland’s youth in employment, education and training.

Given the recent strong jobs growth and increased labour force participation in Queensland, the Government’s economic plan will not only continue to support overall income growth but should also help support wages growth in the medium to longer term, as the demand for labour intensifies and any spare capacity in the labour market is utilised.

 

 

8


Budget Strategy and Outlook 2018-19

 

 

Building on the economic plan outlined in the previous three State budgets, the remainder of this chapter outlines how key initiatives, including new policies and programs outlined in the 2018-19 Budget will contribute to achievement of three key elements of the Government’s economic plan:

 

 

increasing the economic opportunities available to Queenslanders

 

 

enhancing the capacity of Queenslanders to access and capitalise on these opportunities

 

 

ensuring all Queenslanders share in the prosperity and improved quality of life these opportunities deliver.

 

Figure 1.1

Driving jobs and prosperity through the economic plan

 

LOGO

 

 

 

9


Budget Strategy and Outlook 2018-19

 

 

1.2

Increasing the economic opportunities available to Queenslanders

The prosperity and well-being of Queenslanders is closely linked to the economic and employment opportunities that are available to them. The creation of increased opportunities also helps provide the means for individuals and families to fully realise their economic potential through the application of their capabilities, skills and talents.

Given the private sector supports almost five out of every six jobs in Queensland, an essential element of the Government’s economic plan is to drive private sector investment and business growth, thereby supporting and creating new job opportunities.

In particular, the economic plan includes a strong focus on enhancing the employment, education and training opportunities available to Queensland’s youth, ensuring they can take advantage of current job opportunities as well as being better equipped to pursue the jobs of the future.

 

1.2.1

Delivering productive infrastructure

The Government plays a key role in creating job opportunities by investing, facilitating, and delivering productive infrastructure, particularly in the context of the State’s growing population.

Infrastructure investment directly generates significant employment across the State during the construction phase. However, even more importantly, it creates future jobs and investment prospects by expanding the long-term productive capacity of the economy and helping make Queensland businesses more productive, efficient and competitive.

As Queensland transitions to a more innovative, diverse and productive economy, it is vital that infrastructure investments maximise opportunities and provide long-term sustainable benefits to Queenslanders.

The Palaszczuk Government is investing $45.8 billion through the capital works program over the four years to 2021-22. The program includes much needed additional investments in roads, rail, water, energy, hospitals, schools and digital infrastructure projects that will meet the demands of our fast-growing state.

The capital works program includes ongoing Government investment in a number of significant projects including Cross River Rail, upgrades to the M1 motorway and the Bruce Highway and the Toowoomba Second Range Crossing project.

Significant funding related to several of these projects has also been committed beyond the forward estimates period to complete delivery of this transformative infrastructure.

The $11.6 billion capital works program in 2018-19 is estimated to directly support more than 38,000 jobs.

The 2018-19 capital program includes a $4.9 billion investment in roads and transport infrastructure, significant capital purchases related to health ($985.5 million) and education ($674.3 million) and significant capital investment in energy and water of $2.2 billion and $277 million respectively.

 

 

10


Budget Strategy and Outlook 2018-19

 

 

Some key highlights of the 2018-19 capital works program include:

 

 

$733 million to continue to progress the planning, procurement and delivery of the Cross River Rail project

 

 

$200 million to widen the Bruce Highway from four to six lanes between Caloundra Road and the Sunshine Motorway

 

 

$534.3 million to continue the Toowoomba Second Range Crossing project

 

 

$115 million to construct the Mackay Ring Road (Stage 1)

 

 

$89.2 million towards a new public transport ticketing system

 

 

$125.2 million for new classrooms and other infrastructure in state secondary schools to accommodate six full cohorts in 2020

 

 

$94.5 million to further address enrolment growth pressures in state schools as part of the Building Future Schools fund

 

 

$339.1 million towards the construction and upgrade of the social housing stock.

Across the State, the Government’s investment in public infrastructure will drive transformative change, encourage private investment and make our communities better places to live.

Around $5.6 billion of the capital works program in 2018-19 will help deliver key economic and social infrastructure in regional Queensland, estimated to directly support more than 19,000 jobs across Queensland’s important regional economies in 2018-19.

The 2018-19 Budget provides for a $176 million State contribution towards the construction of the Rookwood Weir near Rockhampton. This is in addition to other regionally significant economic infrastructure projects previously announced by the Government.

This Budget also allocates $40 million over 2 years towards the newly established Growth Area and Regional Infrastructure Investment Fund to help fast-track essential regional infrastructure.

Importantly, the Government’s capital works program and the productivity benefits it delivers are not limited to projects historically classified as ‘economic’ infrastructure. Investment in key social infrastructure, such as hospitals and schools, benefits individuals and families by improving health and educational outcomes, thereby increasing the capacity of Queenslanders to participate in the economy and to capitalise on the knowledge-based, high value added jobs of the future.

This Budget features a number of key social infrastructure investments, including a $985.5 million capital program for the health portfolio in 2018-19 to accommodate growing demand for health services, increase service quality and to facilitate innovative and new service delivery models. The Budget allocates an additional $308 million towards Building Future Schools, taking total funding to $808 million. The Government is also allocating $966.3 million over the forward estimates towards the $1.8 billion Queensland Housing Strategy 2017-2027.

Additional funding of $135 million has also been allocated to provide infrastructure grants to non-state schools to meet the needs of Queensland’s growing population.

The Budget also delivers $125 million towards the construction of a $150 million 1,500 to 1,700 seat performing arts venue at the South Bank Cultural Precinct. This project will help attract new visitors and support the development of Queenslanders engaged in the performing arts industry.

 

 

11


Budget Strategy and Outlook 2018-19

 

 

Box 1.1

Population growth – a key driver of economic growth and jobs

Population growth has been a key driver of economic growth and job creation in Queensland over recent decades. From a population of only two million in May 1974, Queensland’s population has grown to reach five million in May 2018, according to recent population estimates released by the Queensland Government Statistician’s Office.

This represents average annual population growth of 2.1% over that period, compared with only 1.2% growth in the rest of Australia.

Notably, overseas and interstate migration were both major drivers of the State’s stronger growth over recent decades. Net migration of nearly 1.9 million people to Queensland has accounted for around 60% of the State’s population growth since 1974 as shown in Table 1.1.

 

Table 1.1

Components of Queensland population growth

 

            Components of change         

Date

   Queensland
Population
     Natural
increase
     Net overseas
migration
     Net interstate
migration
     Total
population
growth1
 

May 1974

     2,000,000              

Feb 1992

     3,000,000        387,000        183,000        406,000        1,000,000  

May 2006

     4,000,000        367,000        249,000        431,000        1,000,000  

May 2018

     5,000,000        410,000        440,000        150,000        1,000,000  

Total increase

        1,164,000        872,000        987,000        3,000,000  

Note:

 

1.

Includes intercensal discrepancy

Source ABS 3101.0, 3105.0.65.001 and Queensland Treasury

Migration is a key driver of economic growth in Queensland:

 

 

migration increases the demand for goods and services, supporting the growth of local businesses and industries, flowing through to increased investment and increased demand for government services

 

 

it increases the number of people available to work

 

 

it helps support increased productivity through the increased productivity-enhancing infrastructure required to support the population growth.

While net interstate migration contributed only 150,000 (15%) to Queensland’s total population growth from 2006 to 2018, the direct result of interstate migration is significant over the period:

 

 

The size of Queensland’s economy (i.e. gross state product) in 2017-18 is around $8.8 billion greater than it otherwise would have been, consisting of:

 

   

$5.1 billion in additional household consumption

 

 

12


Budget Strategy and Outlook 2018-19

 

 

   

$2.3 billion in additional public and private sector investment

 

   

$1.6 billion in additional government consumption

 

   

$2.5 billion in additional exports, offset by $2.8 billion in additional imports.

 

 

The total number of jobs in Queensland in 2017-18 is estimated to be 72,000 greater than it would have been in the absence of interstate migration over this period.

 

 

The economic benefits of interstate migration were shared across all Queensland industries. However, trade-exposed industries such as mining and manufacturing, and labour-intensive industries such as accommodation and food services, health and retail trade, have tended to benefit more than other industries, reflecting the additional supply of labour available.

 

 

The additional labour supply and increased workforce participation means, in the short-term, a reduction in the unemployment rate can be limited.

While population growth has historically been a key factor underpinning economic growth in Queensland, it will also continue to be an important contributor to growth in the future. In particular, as outlined in Chapter 2, the State’s population growth is forecast to strengthen to 134% in 2018-19 and 2019-20, supported by a strengthening in net interstate migration.

Continued investment in productive infrastructure is important to ensure ongoing provision of essential services to manage the pressures related to a growing population and to ensure Queenslanders continue to benefit from the increased growth and opportunities resulting from the State’s ongoing population growth.

 

1.2.2

Driving business growth, investment and exports

Queensland faces ongoing and increasing competition for investment, as capital increasingly becomes more mobile and the global economy becomes more interconnected. Therefore, it is critical that Queensland maintains a competitive business environment which continues to attract and support private investment.

Driving and facilitating private sector investment is crucial, given the private sector accounts for more than 70% of total investment in the economy, in addition to supporting 83% of Queensland jobs.

The Palaszczuk Government is delivering a range of industry attraction and facilitation services to assist industry to establish or expand their operations in Queensland. In the 2018-19 Budget an additional $40 million is provided for the Advance Queensland Industry Attraction Fund and $20 million for the Jobs and Regional Growth Fund, bringing the total funding committed to these programs to $105 million and $150 million, respectively.

A range of initiatives in the 2018-19 Budget will also directly support the growth of key Queensland export sectors, including an additional $94.6 million to support growth of the tourism sector under the Growing Tourism Jobs initiative.

 

 

13


Budget Strategy and Outlook 2018-19

 

 

Importantly, ongoing regulatory reform is a key component of the Government’s economic plan, with red tape reduction increasing business productivity and competitiveness, incentivising greater private sector investment, thereby, ultimately providing an overall boost to employment and economic growth.

In particular, the Government remains committed to cutting costs for the State’s more than 437,000 small to medium sized businesses (as at 2016-17), which employ around two thirds of all Queensland workers. The Budget provides increased funding of $3.9 million to continue delivering the ecoBiz program that helps small to medium sized businesses identify and achieve financial savings and eco-efficiency across energy, water and waste.

Building on the Government’s regulatory reform efforts focused on small business, including establishment of the Better Regulation Taskforce, the Government is progressing development of a Business Impact Statement tool, as well as the election commitment to establish small business consultation panels. These initiatives will help ensure greater consideration of, and consultation with, small business stakeholders when developing policy and regulation.

 

Chart 1.1

Queensland business investment, private and public sector shares, 2016-17

 

 

LOGO

Source: ABS 5206.0 and 8752.0

 

 

14


Budget Strategy and Outlook 2018-19

 

 

Box 1.2

Waste Strategy – driving business investment, innovation and jobs

On 20 March 2018, the Queensland Government announced the development of a comprehensive waste management strategy underpinned by a waste disposal levy.

The waste disposal levy will be instrumental in changing waste management practices in Queensland. By discouraging the disposal of waste to landfill, it will significantly boost certainty for investment in job-creating reuse, recycling, bioproducts and waste-to-energy industries.

By bringing Queensland into line with other States, the levy will also remove a key incentive for cross-border transport of waste to local landfills.

The waste strategy and levy are being introduced in a period of changing international policies relating to acceptance of recycling material, including China’s decision to tighten quality standards for imported recyclable material.

Key elements of the Queensland Waste Strategy

The levy will commence in the first quarter of 2019 and will apply to 38 local government areas, covering more than 80% of the State’s population. The waste disposal levy will apply to all general waste streams.

The levy will be set at $70 per tonne for general waste, increasing by $5 per annum. Proceeds from the levy will be used for waste programs, environmental priorities and community purposes.

There will be $100 million allocated over three years to support Queensland’s resource recovery and recycling industry through the Resource Recovery Industry Development Program. The program will facilitate private sector and local government projects delivering innovative solutions to the problem of waste going to landfill and create jobs in emerging industries.

The Government will provide an annual advance on levy charges to those local governments that dispose of municipal waste in the levy zone. In 2018-19, $32 million has been provided for this purpose. This will avoid direct costs to households from introduction of the waste levy. Between 2018-19 and 2021-22 it is expected that over 70% of revenue generated through the waste levy will be allocated to advance payments to councils, scheme start-up and operational costs, industry programs and other environmental priorities. Surplus revenue from the levy will benefit the entire Queensland community by providing funding for schools, hospitals, transport infrastructure and frontline services.

Economic and employment impacts

There are significant employment and economic impacts resulting from an effective waste strategy, including a waste levy on landfill disposal.

 

 

15


Budget Strategy and Outlook 2018-19

 

 

A recent independent study highlighted the relationship between the introduction of a waste levy and other key elements of a waste strategy with increasing waste diversion rates, business investment, innovation and jobs in the recycling sector.

Based on experience in other jurisdictions, both nationally and internationally, there is potential for Queensland to achieve higher recovery rates and derive the associated business investment, innovation and employment benefits.

In particular, the report indicated that the introduction of a waste strategy and waste levy in Queensland should play an important role in enabling these benefits to Queenslanders from higher-order resource recovery opportunities in the future.    

The study also found that introduction of a waste levy will promote a reduction in waste generation and increase the diversion of waste to higher-value waste recovery and recycling industries.

The introduction of a levy in Queensland at $70 per tonne, combined with other key elements of the waste strategy, will support new jobs in the waste industry over the long-term.

The report also indicated that the introduction of a waste levy should result in a significant reduction of interstate waste being transported to Queensland.

 

1.2.3

Encouraging innovation – Advance Queensland

Innovation is one of the key drivers of growth and job creation by facilitating economic transformation and boosting business competitiveness.

Through its flagship Advance Queensland initiative totalling $650 million, the Queensland Government maintains a strong focus on fostering innovation and entrepreneurship to enable Queensland businesses to adapt rapidly to the ever-changing global business environment. The 2018-19 Budget provides increased funding of $50 million over five years for key Advance Queensland programs, including the Ignite Ideas Fund and Industry Research Fellowships. The funding also includes an extension to ‘The Precinct’, Queensland’s flagship hub for start-ups, the Clem Jones Centre for Ageing and Dementia Research and a range of programs to drive and scale innovation in Queensland.

The 2018-19 Budget also provides increased funding of $40 million over 2 years to the Business Development Fund to support emerging and high growth innovative Queensland businesses to commercialise their ideas by co-investing with experienced venture capital firms and investors.

The Palaszczuk Government’s continued focus on encouraging innovation is yielding tangible benefits. Advance Queensland programs are backing over 3,000 innovators, whose projects will drive over 11,000 jobs. Engagement and involvement across the State has been high, with over 60,000 attendees at Advance Queensland events, 57% of which were held in regional Queensland.

 

 

16


Budget Strategy and Outlook 2018-19

 

 

Significant achievements to date include:

 

 

providing over 200 small and medium sized businesses with opportunities to commercialise market ready innovative ideas under the Ignite Ideas Fund, helping them grow and compete in a global market

 

 

attracting over 35 international start-ups to Queensland through the Hot DesQ program

 

 

developing roadmaps and action plans for a range of industry sectors, including Biofutures and Biomedical and Life Sciences, to promote knowledge-based jobs and the economy of the future

 

 

establishing the Queensland Genomics Health Alliance to address the challenge of translating genomics data into meaningful clinical care to improve the health of our community.

 

1.2.4

Protecting and utilising our natural assets

Queensland’s natural resource endowments provide significant economic opportunities to Queenslanders and a key plank of the Government’s economic plan has been to ensure appropriate protection and sustainable use of these valuable assets.

Around 80% of Queensland’s land area is utilised for agricultural purposes, and the State’s mineral producers exported coal, LNG and other minerals worth more than $56 billion in the year to March 2018. Meanwhile, Queensland’s comparative strengths in solar, wind and biofuels have also seen significant growth in the renewable energy sector in recent years.

Queensland’s beaches, national parks and Great Barrier Reef continue to attract visitors from across Australia and around the world, who spent 140 million visitor nights in the State in 2017, up 25% since 2011.

Clearly, one of Queensland’s most significant natural resources and tourist attractions is the world renowned Great Barrier Reef. To protect this vital natural asset, the Queensland Government has committed substantial resources to improving water quality in the catchment to improve long-term sustainability. The Queensland Reef Water Quality Program provides a total of $330 million over a five-year investment plan to address all land-based sources of water pollution.

In addition to this prior commitment, the 2018-19 Budget provides $26 million in 2018-19 over the next four years for the Great Barrier Reef Joint Field Management Program, and a total of $13.8 million to help agricultural producers transition to new minimum standards designed to protect the reef.

In line with the Government’s ‘Saving Habitat, Protecting Wildlife and Restoring Land’ commitment, the Government has committed to establishing its flagship Land Restoration Fund (LRF).

The LRF will aim to support and develop Queensland’s emerging carbon farming industry by investing in projects that will deliver not only carbon reduction outcomes, but also other environmental, economic, and social co-benefits for Queenslanders. The Government will act as a cornerstone investor by providing seed capital of $500 million and the LRF will seek to leverage other sources of investment including from private and philanthropic sources.

 

 

17


Budget Strategy and Outlook 2018-19

 

 

The Fund complements a range of other initiatives being delivered, such as the $50 million Solar Thermal Plant Capital Contribution, to reduce Queensland’s contribution to climate change.

The Government is also implementing a range of policies to ensure our valuable mineral resources are managed sustainably and that their extraction brings economic and employment benefits to Queenslanders. Delivering on its election commitment, the Government has released more than 6,000 square kilometres of land for gas exploration for domestic use only to deliver more gas for domestic consumers to ease pressure on gas-dependent manufacturing industries.

 

1.3

Enhancing the capacity of Queenslanders to access and capitalise on opportunities

Ongoing changes in the State’s industry structure, as it continues to transition to a more knowledge intensive and services based economy, combined with technological change and other factors, have seen a significant shift over recent decades in the types of jobs and the skills needed to drive economic activity.

Most notably, strong growth in community and personal service workers has seen that sector’s proportion of total employment double between 1988 and 2018, while professionals now account for around one in every five jobs in Queensland.

 

Chart 1.2

Queensland employment share by occupation

 

LOGO

Source: ABS 6291.0.55.003

 

 

18


Budget Strategy and Outlook 2018-19

 

 

1.3.1

Investing in skills for Queenslanders

The flexibility and adaptability that the State’s workforce has displayed over many decades will need to continue for Queensland to stay along a path of strong and sustainable growth that delivers higher living standards for all Queenslanders.

In recognition of this challenge, the Government’s economic plan has a strong focus on investing in training opportunities for Queensland workers and jobseekers to gain skills to seamlessly transition into new roles, engage in new types of work and continue contributing to the economy.

This includes training and employment programs targeted at improving short to medium term outcomes, but also extends to broader education focused policies aimed at maximising Queensland’s human capital in the long-run.

The 2018-19 Budget builds on the success of the Back to Work program, which has successfully given Queensland employers the confidence to take on new employees and grow their businesses, through increased funding of $20.5 million to give employers in targeted areas of South East Queensland access to employer support payments with applications open to 30 June 2020.

The Payroll Tax Apprentice and Trainee Rebate is a key initiative which supports the ongoing development of Queenslanders’ skills, particularly for the State’s youth. The rebate assists employers grow their businesses while also helping to build the stock of qualified and skilled Queenslanders.

The 2018-19 Budget includes a commitment of $26 million to extend the higher 50% payroll tax rebate for a further 12 months to June 2019, which is expected to support the hiring of up to 26,000 apprentices and trainees throughout the year.

The State’s disadvantaged jobseekers are another key focus of the Government’s employment and training policy agenda, with the Skilling Queenslanders for Work initiative providing opportunities for tens of thousands of jobseekers in cohorts who have historically faced substantial labour market challenges.

Following increased investment of $180 million in the 2017-18 Mid Year Economic and Fiscal Review, the Government’s six-year investment in Skilling Queenslanders for Work will now total $420 million by 2020-21.

Given the changing nature of skills requirements in the 21st century global economy, it is essential that individuals are equipped with the entrepreneurial and digital skills needed by innovative businesses and emerging industries.

Recognising the importance of early childhood education, the 2018-19 Budget also provides $20 million over four years and $5 million ongoing per annum to continue the First 5 Forever (F5F) Family Literacy Program, providing direct support to parents to build strong early years literacy foundations for children aged five years and below.

 

 

19


Budget Strategy and Outlook 2018-19

 

 

1.4

Ensuring all Queenslanders share in the increased prosperity and quality of life

The Queensland Government also plays a number of significant roles in ensuring the benefits of economic growth and the new opportunities created are translated into enhanced wellbeing and prosperity for all Queenslanders.    

The Queensland Government continues to react and respond to Queenslanders’ preferences and is attuned to the community’s concerns and needs.    

This includes the Government continually striving to improve the effectiveness and efficiency of its delivery of essential services by promoting new and innovative approaches to the procurement of those services.

As such, a range of essential Queensland Government services not only improve the health and safety of Queenslanders, their families and the community, but are also essential in underpinning economic outcomes, by enabling Queenslanders to be more productive and economically engaged through employment, education and training.

As part of the Government’s commitment to reduce cost of living impacts on Queensland households and small businesses, the 2018-19 Budget provides $5.6 billion to help manage household budgets. A number of concessions are focused on supporting pensioners, special needs and disadvantaged members of the community to help reduce the cost of life’s essentials including electricity, water, transport, education and housing. The 2018-19 Budget also provisions around $500 million for Queensland’s participation in the National Redress Scheme for Survivors of Institutional Child Sexual Abuse.

The Government has also made substantial investments to deliver the frontline services that Queenslanders need to ensure the health, education, safety and wellbeing of Queensland communities over recent years.

A record education and training operating budget of $14.1 billion in 2018-19 will continue to deliver quality education to our young Queenslanders and $732 million transformative capital improvements to school and training facilities across the State.

The 2018-19 Budget also provides significant funding to continue to deliver first-class health services to Queenslanders. This includes a record $17.3 billion in operating funding, as well as a $985.5 million health portfolio capital program.

The Palaszczuk Government also remains committed to protecting Queenslanders and keeping the State’s families and communities safe. This Budget delivers significant funding for a range of new and ongoing initiatives across the key public safety agencies, including an additional $171.9 million over four years for 400 police officers in high priority areas and $55.1 million over four years for 85 counter-terrorism officers and operational specialists and to establish a Security and Counter-Terrorism Command. This builds on the investment in the 2017-18 Budget for an additional 30 counter-terrorism police officers and 20 police officers, bringing total additional frontline police and operational specialists in priority areas across the State to 535.

 

 

20


Budget Strategy and Outlook 2018-19

 

 

The $1.8 billion Queensland Housing Strategy, announced in the 2017-18 Budget, will continue to deliver more social and affordable housing, and transform the way housing services are delivered in Queensland. Meanwhile, Queensland families and communities will continue to benefit from the revitalisation of frontline service delivery in health, education and policing.

The 2018-19 Budget provides a total of $17 million over three years to enact the Government’s election commitment to implement a ‘No Card, No Start’ policy, which will prevent Blue Card applicants from commencing work until their application has been approved and their Blue Card issued.

The Government also recognises that a key element of being a responsive government is ensuring the services it provides are easy to use in the most effective and efficient way possible, and that it meets the standards of service demanded by Queenslanders. To this end, the 2018-19 Budget delivers additional funding of $8.8 million in 2018-19 to continue digital technology and service delivery measures to improve customer service.

The Government’s economic plan also recognises the importance of the interaction between different levels of government to help fund important community projects and programs, improving environmental outcomes and reducing the cost of living. As such, the Budget provides additional funding of $32 million in 2018-19 for advance payments to councils to meet the cost of municipal household waste sent to landfill and to avoid any direct impact on households associated with the introduction of the Waste Disposal Levy in 2019.

The Budget also delivers on the Government’s election commitment to implement more effective funding grants to Local Government by allocating a total of $4.5 million over four years to progress the implementation of the Review of Grants to Local Government: Current and Future State Assessments report. Councils will receive a total of $1.7 billion in grants in 2018-19.

 

 

21


Budget Strategy and Outlook 2018-19

 

 

2

Economic performance and outlook

Features

 

 

Growth in Queensland gross state product (GSP) is expected to strengthen to 234% in 2017-18, largely reflecting a rebound in business investment and a recovery in coal exports following the impacts of Severe Tropical Cyclone (STC) Debbie in 2016-17.

 

 

Economic growth is forecast to strengthen further to 3% in 2018-19. In 2019-20, while domestic activity should strengthen and support stronger jobs growth, it will also boost imports. Combined with a moderation in export growth, this will constrain the trade sector’s contribution to growth and result in GSP growth easing to 234%. From 2020-21, GSP is expected to grow 234% per annum, consistent with the State’s longer run potential.

 

 

Stronger global economic conditions have boosted industrial production across Queensland’s major trading partners, lifting demand for and prices of several of the State’s key commodity exports. A rebound in coal exports following STC Debbie and the final year of the LNG ramp-up have also supported growth in overseas exports in 2017-18.

 

 

Growth in household consumption has remained subdued in 2017-18, despite a strong pick up in full-time jobs. Growth is then expected to gradually strengthen over the forecast period. Meanwhile, dwelling investment is on track for a ‘soft landing’, with a slight decline in activity in 2017-18 and 2018-19 before returning to modest growth in 2019-20.

 

 

Business investment has rebounded strongly in 2017-18, to be a key driver of economic growth. The recovery was initially driven by spending on machinery and equipment, but has since become broader-based, with improved business conditions and ongoing growth in tourism and education exports supporting a recovery in non-dwelling construction.

 

 

However, largely reflecting the strong ramp up in business investment, overseas import growth is expected to be considerably higher than the growth in overseas exports, resulting in the trade sector detracting from overall growth in 2017-18.

 

 

From 2018-19 onwards, growth in commodity exports is expected to be modest, while prices, particularly for coal, are expected to decline from current elevated levels. However, with imports expected to ease in 2018-19 following the surge in 2017-18, the trade sector should contribute to growth in 2018-19.

 

 

Employment growth has been stronger than expected in 2017-18, driven largely by health, construction, transport and education. While growth has eased in early 2018, the strong gains in late 2017 mean growth over the year to June quarter 2018 is estimated to be 234%. Partially reflecting a lower level of activity in dwelling construction, employment is expected to grow at more sustainable rates of 112% and 134% over the next two years.

 

 

The entry of jobseekers encouraged by greater opportunities has seen the participation rate rise sharply and the unemployment rate stabilise in the short-term, with the unemployment rate forecast to remain at 614% in June quarter 2018 and 2019. However, stronger domestic activity is expected to see the rate fall to 6% by June quarter 2020.

 

 

22


Budget Strategy and Outlook 2018-19

 

 

2.1

International conditions

Global conditions improved significantly in 2017 and, on balance, the economic prospects of Queensland’s major trading partners are positive over the forecast period. However, while the recent stronger growth is likely to extend into 2018, the pace of growth is expected to moderate in later years.

In addition to monetary policy settings by major central banks remaining accommodative, stronger global trade drove a rebound in industrial production in almost all of Queensland’s major trading partners in 2017. This in turn has led to a strong recovery in mineral and energy prices.

However, the current outlook suggests that coal, iron ore and oil prices will decline to more sustainable levels in the coming year, in line with an anticipated slowing in global industrial production growth following its rebound in 2017.

Meanwhile, a widening interest rate differential between the US and Australia saw the A$ fall back towards the lower end of the 75-80USc range by mid-May 2018. A sustained lower exchange rate will support the incomes and international competitiveness of Queensland exporters. However, higher US interest rates could see funds flow more towards the US and other overseas capital markets.

Growth in the United States, supported by expansionary monetary and fiscal policy, has seen the US labour market at or near full employment and inflation close to the Federal Reserve’s (the Fed) target. While the Fed has continued to reverse some monetary stimulus, the recent fiscal stimulus provided by tax cuts and spending legislation is likely to support growth in the short-term. However, the tight labour market may increase inflationary pressure and cause the Fed to raise interest rates further and faster than anticipated, while any future balance sheet repair required due to the impact on US government debt may offset some of the short-term stimulus.

China’s economy has maintained growth close to 7% in the past three years. The country’s brisk pace of economic and social development has coincided with an ageing population, widening income inequality, high corporate debts and rising pollution. China’s economic growth is expected to ease in the near-term, with trade tensions with the US providing a risk to the outlook.

Japan’s economy has been expanding moderately in recent years, with the country’s exports increasing on the back of stronger global economic growth. Japan’s monetary policy is likely to remain accommodative for some time and, along with spending related to the 2020 Tokyo Olympics, Japan’s economy is likely to grow moderately in the near-term.

Industrial production growth in Korea moderated in 2017, partly due to the appreciation of the Korean Won against the Japanese Yen over the course of 2017. Overall economic growth in Korea is expected to moderate slightly in 2018 and 2019.

India’s economy has seen a rebound in growth, as investment and consumption continue to drive the cyclical recovery. The Reserve Bank of India expects India’s economy to grow by 7.4% in 2018-19, which would likely see India as the world’s fastest growing major economy.

 

 

23


Budget Strategy and Outlook 2018-19

 

 

2.2

National conditions

The national economy continues to transition towards broad-based growth. Australian Treasury forecasts GDP growth to strengthen to 234% in 2017-18 and to 3% in both 2018-19 and 2019-20.

A pick-up in household consumption is supported by strengthening wage growth and solid employment outcomes, while dwelling investment is expected to remain elevated by historical standards. Australian Treasury expects business investment to return to growth in 2017-18, driven by a lift in non-mining business investment and a diminishing drag from mining investment.

Goods exports nationally continue to be supported by the expansion of mining capacity, primarily in Western Australia (iron ore and LNG) and the Northern Territory (LNG), while services exports are benefiting from opportunities in the Asian region. Australian Treasury expects employment growth to moderate from current rates and the unemployment rate to ease gradually.

 

2.3

Queensland conditions and outlook

Growth in the Queensland economy is expected to strengthen to 234% in 2017-18, reflecting further improvement in domestic demand (as business spending has rebounded) and a recovery in coal exports following STC Debbie. Economic growth is forecast to accelerate further to 3% in 2018-19, with household consumption gaining momentum and a contribution to growth from the trade sector as imports ease (Chart 2.1).

 

Chart 2.1

Economic growth1, Queensland and Australia

 

LOGO

Note:

 

1.

CVM, 2015-16 reference year, 2017-18 onwards are forecasts/projections.

Sources: ABS 5206.0, Australian Government Budget 2018-19 and Queensland Treasury.

 

 

24


Budget Strategy and Outlook 2018-19

 

 

Domestic activity is forecast to strengthen in 2019-20, supporting stronger jobs growth, but also boosting imports. When combined with a forecast moderation in exports growth, as some key commodities approach production capacity, this is expected to constrain the trade sector’s contribution to growth in 2019-20 and result in overall growth easing to 234% in the year. From 2020-21, Queensland GSP is expected to grow by 234% per annum, consistent with the State’s longer-run potential (Table 2.1).

 

Table 2.1

Queensland economic forecasts/projections1

 

     Actual      Est. Act.      Forecasts      Projections  
     2016-17      2017-18      2018-19      2019-20      2020-21      2021-22  

Gross state product2

     2.5        234        3        234        234        234  

Nominal gross state product

     9.3        512        4        334        412        434  

Employment3

     1.8        234        112        134        134        2  

Unemployment rate4

     6.2        614        614        6        6        534  

Inflation5

     1.7        134        2        212        212        212  

Wage Price Index5

     1.9        214        212        3        3        3  

Population5

     1.5        134        134        134        134        134  

Notes:

 

1.

Unless otherwise stated, all figures are annual percentage change.

2.

Chain volume measure (CVM), 2015-16 reference year.

3.

Through-the-year growth rate to the June quarter (seasonally adjusted).

4.

Seasonally adjusted rate for the June quarter.

5.

Annual percentage change, year-average.

Sources: ABS 3101.0, 6202.0, 6345.0, 6401.0 and Queensland Treasury.

Household consumption

Constrained by moderate growth in household incomes, Queensland household consumption grew by 2.4% in 2016-17. While a marked improvement in labour market conditions in 2017-18 has aided a pick-up in overall compensation of employees, wage pressures in the economy remain low and households continue to be cautious about spending.

Further, with the State’s household savings rate in 2016-17 at its lowest since 2003-04, any growth in income will likely be utilised to pay off household debt, rather than translate into increased consumption in the short-term.

With the terms of trade expected to moderate and jobs growth forecast to soften following the exceptionally strong gains in 2017-18, household consumption growth is again forecast to be subdued in 2018-19. Additionally, the slowing in apartment construction is expected to both constrain spending on household goods and furnishings and reduce consumption due to falls in associated construction employment. In later years, consumption growth is forecast to pick up gradually, but remain below the average growth rates recorded prior to the GFC.

 

 

25


Budget Strategy and Outlook 2018-19

 

 

Dwelling investment

After several years of sustained growth, Queensland’s dwelling investment cycle peaked in 2016-17. Driven by a decline in the construction of attached dwellings (units, apartments, etc.), dwelling investment is forecast to contract in 2017-18 and 2018-19, as the large amount of new apartment supply is absorbed into the market. However, the decline across these years is expected to be moderate relative to previous cycles. Modest growth is expected to return from 2019-20 onwards, as the decline in attached dwelling construction slows and is offset by the construction of new houses and ongoing growth in alterations and additions.

Business investment

Following the LNG construction boom, Queensland business investment fell rapidly in 2014-15 and 2015-16 before stabilising in 2016-17, driven by a return to growth in machinery and equipment investment. Business investment is expected to rebound strongly in 2017-18, driven by growth across all components.

Growth in engineering construction is expected to be supported by investment in renewable energy projects, including wind and solar farms, in 2017-18 and 2018-19. However, with few major resources projects currently committed or under construction, growth in heavy industry investment will likely be subdued in the medium-term.

Non-residential building construction work has risen, strengthened by accommodation and educational facilities amid increased education enrolments and tourism activity. This trend is likely to continue. Elevated vacancy rates mean new investment in office space is likely to be subdued.

Machinery and equipment expenditure has risen solidly, buoyed by increased company profits, low lending rates to businesses and the lower A$ benefiting exporters. Recent strength in employment growth and elevated capacity utilisation rates suggest this component should continue to grow in 2018-19. Overall, business investment is forecast to pick up steadily over the forecast period, consistent with a steady acceleration in non-dwelling construction growth.

Public final demand

Public final demand is forecast to continue to grow strongly. A range of large expenditure programs (such as the National Disability Insurance Scheme) and infrastructure projects, including the Queensland Government’s $11.6 billion capital works program in 2018-19, will underpin this growth.

Overseas exports and imports

A rebound in coal exports following STC Debbie and the final year of the LNG production ramp-up have supported growth in overseas exports in 2017-18. However, the unexpected strong growth in overseas imports will result in net exports detracting from overall growth in 2017-18. In 2018-19, net exports are expected to contribute modestly to growth, but an increase in imports to support domestic growth in 2019-20 will constrain the overseas trade sector’s contribution to growth in that year.

 

 

26


Budget Strategy and Outlook 2018-19

 

 

Coal export volumes have rebounded in 2017-18, following the loss of 11 million tonnes in April and May 2017 due to STC Debbie. However, this recovery has been tempered somewhat by the impacts of Tropical Cyclone Iris in early April 2018 and maintenance across port and rail infrastructure. Looking ahead, while coal exports volumes are forecast to continue to grow strongly in 2018-19, partly due to a resumption of full operation at the Dalrymple Bay Coal Terminal, the rate of growth will most likely be moderate in later years. Increased industrial production in Asia, particularly Japan and Korea, is expected to underpin demand for hard-coking coal, while new coal fired power stations in Japan will support demand for thermal coal.

Following several price spikes throughout 2016-17 and 2017-18 (due to regulatory supply restrictions in China, STC Debbie and increased demand in China), hard-coking prices are forecast to decline throughout 2018-19, but remain higher than 2015-16 levels. Similarly, thermal coal prices, which have been elevated throughout 2016-17 and 2017-18, are expected to decline in 2018-19, but remain above 2015-16 prices.

LNG export volumes have grown significantly in recent years, as all six LNG production trains on Curtis Island were completed and began exporting. However, reflecting strong domestic demand for gas, LNG exports have plateaued slightly below nameplate capacity and growth is expected to moderate in the coming years. With 2017-18 being the first full year in which all six LNG trains are in production, any further growth in LNG exports will be driven by new gas developments which will also provide additional supply into the eastern domestic gas market.

Metals export volumes are expected to return to growth in 2018, after closures of depleted mines and production cuts. With several new projects and increased production encouraged by a sustained rally in prices, metals exports are forecast to grow solidly in 2018-19 and 2019-20.

 

Chart 2.2

Overseas goods exports, Queensland

 

LOGO

Source: Queensland Treasury.

 

 

27


Budget Strategy and Outlook 2018-19

 

 

Beef export volumes are expected to return to growth from 2017-18 onwards. With seasonal conditions expected to return to normal, restocking activity is forecast to gradually wane.

Sugar exports are expected to decline in 2017-18 following STC Debbie. Some recovery is expected in the near-term with only modest growth in the medium-term. Cotton exports are forecast to grow further in 2017-18, following a large increase in 2016-17. Other crop exports are forecast to decline substantially in 2017-18, due to large falls in wheat and chickpeas.

With the A$ remaining at a more competitive level for an extended period, tourism exports are expected to grow solidly over the forecast period. However, with national tourism growth being underpinned largely by growth from Chinese and Indian tourists visiting friends and relatives, Queensland tourism is expected to continue to grow more moderately than the southern states.

Queensland’s international education exports have grown strongly in recent years. A competitive A$, rising demand for education from Asia and increasing popularity amongst South American students are all expected to support continued strong growth.

Imports have picked up strongly in the first half of 2017-18 as business investment growth increased the demand for imported capital goods. However, the significant growth in imports has been stronger than the growth in machinery and equipment investment, possibly reflecting pent-up demand as business confidence continues to recover following the GFC.

Following the strong rebound in 2017-18, business investment is forecast to return to more moderate growth from 2018-19, while household consumption is expected to remain subdued over the forecast period. Reflecting these trends, imports are forecast to fall from elevated levels in 2018-19, before returning to modest growth in 2019-20.

Labour market

Employment growth has been stronger than expected in 2017-18. While employment growth has moderated in early 2018, the exceptional gains in late 2017 mean growth over the year to June quarter 2018 is estimated to be 234%. Employment growth is expected to return to more sustainable rates of 112% and 134% respectively over the next two years (Chart 2.3).

The ongoing downturn in labour-intensive residential construction over 2018 and 2019 will be a key factor in the moderation of employment growth from its current high rate, with dwelling investment having considerable flow on effects to household consumption.

Rather than generating a similar reduction in the State’s unemployment rate, much of the recent strength in Queensland employment has been absorbed by increased labour force participation. The strong jobs growth has encouraged jobseekers to re-enter the labour force, seeing the participation rate climbing to its highest rate in three years. As a result, the unemployment rate is forecast to remain at 614% in the near term (June quarter 2018 and 2019).

With improved business investment, ongoing public spending programs and a slowly strengthening household sector, employment growth is forecast to improve in 2019-20 to be at or slightly above growth in the working age population. As the dwelling investment cycle matures and domestic economic activity strengthens, employment growth is expected to strengthen and the unemployment rate is forecast to move slightly lower later in the forecast period, improving to 6% in June quarter 2020 as spare capacity in the labour market is absorbed.

 

 

28


Budget Strategy and Outlook 2018-19

 

 

Chart 2.3

Employment growth1 and unemployment rate2, Queensland3

 

LOGO

Notes:

 

1.

Through-the-year growth rate to the June quarter (seasonally adjusted).

2.

Seasonally adjusted rate for the June quarter.

3.

2017-18 onwards are forecasts/projections.

Sources: ABS 6202.0 and Queensland Treasury.

Regional labour markets

With agriculture, mining and construction accounting for a significant portion of economic activity in regional Queensland, the operating environment of these few industries are crucial to the conditions and outlook for labour market outcomes in regional Queensland.

While farmers continue to face challenging conditions due to widespread drought, those regions exposed to the resources sector have improved. Meanwhile, continued growth in tourism activity has also supported a return to solid employment growth in regional Queensland (Chart 2.4).

As a result, the unemployment rate across many regional centres has declined and the overall gap between regional and South East Queensland has narrowed substantially in 2017-18. After stabilising between 2015 and early 2017, the aggregate unemployment rate in regional Queensland fell 0.6 percentage point (to 7.2%) over the year to April 2018, compared with a 0.1 percentage point increase in the South East (to 5.7%).

Areas such as Mackay and Cairns have shown considerable improvement. Over the year to April 2018, employment has risen in Townsville (up 10,300 persons), Mackay (up 6,900 persons) and Cairns (up 4,900 persons). Meanwhile, these regions’ unemployment rates have fallen by 2.3 percentage points (to 8.5%), 2.0 percentage points (to 3.8%) and 0.8 percentage point (to 6.3%), respectively.

 

 

29


Budget Strategy and Outlook 2018-19

 

 

The improvement in Cairns is consistent with stronger tourism activity in recent years which has encouraged new investment projects and additional direct flights from China and Japan. Labour market conditions for younger workers in Cairns, closely linked to conditions in the region’s tourism industry and opportunities for lower-skilled workers, have also improved.

Meanwhile, Fitzroy appears to be adjusting following the wind-down in LNG construction investment and lingering impacts of the drought on beef production. Similar to Mackay, coal operations in the Fitzroy region have benefited from higher coal prices.

Labour market outcomes in Townsville have improved over the past year. However, while Townsville is a reasonably diversified economy, it continues to be influenced by prospects in the resources sector, directly through fly-in fly-out workers and indirectly via its processing infrastructure.

Conditions in the diverse Queensland-Outback region also remain challenging. The Outback faces ongoing drought conditions in the south and central west, and elevated levels of unemployment across some Indigenous communities.

 

Chart 2.4

Employment growth1 by region, Queensland

 

LOGO

Note:

 

1.

Year-average. South East Queensland is defined as Greater Brisbane, Gold Coast, Sunshine Coast and Toowoomba.

Source: ABS 6291.0.55.003

 

 

30


Budget Strategy and Outlook 2018-19

 

 

Prices and wages

Brisbane consumer price growth is expected to remain subdued in 2017-18, with inflation largely due to the scheduled 12.5% annual increase in the Australian Government’s tobacco excise, higher purchasing costs for new dwellings and higher automotive fuel prices. A modest acceleration in inflation is forecast for 2018-19, with a further increase in the tobacco excise and increased new dwelling purchase prices again contributing strongly to increases in the CPI.

Despite nominal wage growth remaining low by historical standards, real wages have continued to rise. As conditions in the domestic economy and spare capacity in the labour market declines, wage growth is expected to improve over the medium-term.

Population

Queensland’s population growth is forecast to average around 134% in 2017-18 and over the remainder of the forecast period.

Housing affordability has seen a strengthening in net interstate migration from New South Wales, while the end of the Western Australian resources investment boom has seen an increase in net inflows over recent years, after a period of outflows to that state between 2008 and 2015.

Net overseas migration in Queensland has grown strongly but is expected to moderate in 2018, consistent with national policies. However, rising incomes in Asia and the competitive A$ will continue to help drive growth in net overseas migration over the medium-term.

Over the longer term, Queensland Treasury projections show that Queensland’s population, which is estimated to have recently topped 5 million, will reach 6 million by 2029 and 7 million by 2038, with much of this growth anticipated to occur in the south east of the State.

Substantial investment in transport, health and education infrastructure, from both the public and private sectors, will be required to support the productive capacity of this increased population base. The Palaszczuk Government’s $45.8 billion capital works program is designed to help meet the demands of the State’s growing population.

 

2.4

Risks and opportunities

Key risks to the international outlook include the timing of monetary policy normalisation in major economies, particularly the US. Further interest rate differentials between the US and Australia may have an adverse flow-on effect to the Australian economy in general, particularly on borrowing costs.

Further, there are still uncertainties surrounding global trade conflicts which may impair demand for key industrial commodities.

Domestically, uncertainty remains around the extent of oversupply in the apartment market, and any concurrent downturn in major southern capitals could exacerbate the downturn in Queensland.

 

 

31


Budget Strategy and Outlook 2018-19

 

 

There are ongoing uncertainties surrounding changes to coal transport scheduling and any potential response by coal miners, other above-rail providers and ports. The current assessment is that the impact may not be significant, and that the issue is expected to be resolved this year. Overall, coal exports are expected to be higher in 2018-19 compared to last year. Notwithstanding this, the uncertainty provides a risk to the outlook.

More than 50% of the State remains drought declared. While a return to normal seasonal conditions is assumed, if current drought conditions continue, it could negatively impact on agricultural investment, production and exports.

Upside risks include the possibility that business investment may be stronger than currently predicted if company profits continue to remain at high levels or more large scale renewable energy projects are committed. Further, if commodity prices remain relatively high for longer than anticipated, it may rekindle some additional interest in other mining-related investment.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Table 2.2

Queensland economic forecasts1, by component

 

     Actual      Est. Act.      Forecasts  
     2016-17      2017-18      2018-19      2019-20  

Economic output2

           

Household consumption

     2.4        2        214        212  

Private investment

     1.3        412        114        212  

Dwelling investment

     3.2        -414        -112        1  

New and used

     4.2        -714        -334        -12  

Alterations and additions

     1.1        3        3        4  

Business investment

     -1.9        1034        314        334  

Non-dwelling construction

     -6.8        10        112        312  

Machinery and equipment

     5.3        1112        534        4  

Private final demand

     2.1        234        2        212  

Public final demand

     5.2        4        334        3  

Gross state expenditure

     3.0        3        214        234  

Net overseas exports3

     0.4        -134        114        0  

Overseas exports

     6.8        212        434        214  

less Overseas imports

     5.8        12        -1        234  

Gross state product

     2.5        234        3        234  

Nominal gross state product

     9.3        512        4        334  

Other economic measures

           

Employment4

     1.8        234        112        134  

Unemployment rate5

     6.2        614        614        6  

Inflation6

     1.7        134        2        212  

Wage Price Index6

     1.9        214        212        3  

Population6

     1.5        134        134        134  

Notes:

 

1.

Unless otherwise stated, all figures are annual percentage changes.

2.

CVM, 2015-16 reference year, except nominal GSP. Components not separately reported are other investment (cultivated biological resources, intellectual property products and ownership transfer costs), the balancing item (including interstate trade and inventories) and the statistical discrepancy.

3.

Goods and services, percentage point contribution to growth in gross state product.

4.

Through-the-year growth rate to the June quarter (seasonally adjusted). The comparable growth rates in year average terms are 0.0%, 4%, 112% and 134% from 2016-17 through to 2019-20.

5.

Seasonally adjusted rate for the June quarter.

6.

Annual percentage change, year-average.

Forecast assumptions include: a gradual rise in the RBA cash rate from 2019; a broadly stable A$; oil prices to fall in the near term and then be relatively stable; and a neutral outlook for weather conditions.

Sources: ABS 3101.0, 6202.0, 6345.0, 6401.0 and Queensland Treasury.

 

 

33


Budget Strategy and Outlook 2018-19

 

 

3

Fiscal strategy and outlook

Features

 

 

The 2018-19 Budget delivers on the Government’s election commitments, especially in the areas of infrastructure, jobs and skills, and services.

 

 

A net operating surplus of $1.512 billion is expected for 2017-18. This is $1.027 billion higher than estimated at the 2017-18 Mid Year Fiscal and Economic Review (MYFER), and $1.366 billion higher than the surplus forecast at the time of the 2017-18 Budget.

 

 

The significant 2017-18 surplus results from short-term factors, particularly higher royalty revenue from coal prices remaining higher for longer than expected, increased Australian Government grants due to a larger Goods and Services Tax (GST) pool and upwards revisions to revenue from dividends and income tax equivalent income.

 

 

The strong 2017-18 operating surplus will see General Government Sector debt in 2017-18 around $2.4 billion lower than estimated in the 2017-18 Budget.

 

 

The expected return of coal prices to the medium-term outlook, anticipated reductions to GST revenue and declining dividends and interest income means the fiscal environment beyond 2017-18 remains challenging.

 

 

A General Government Sector net operating surplus of $148 million is forecast for 2018-19. Net operating surpluses are forecast across the forward estimates, though smaller than estimated at MYFER as a result of anticipated significant reductions in receipts from the Australian Government, particularly GST.

 

 

The General Government Sector debt to revenue ratio has decreased substantially over the period to 2017-18 in each successive budget since 2014-15. The debt to revenue ratio for 2017-18 has fallen to 54%, primarily as a result of the strong 2017-18 operating surplus, and is significantly lower than the peak of 91% in 2012-13.

 

 

Queensland’s General Government Sector borrowing costs as a percentage of revenue are now largely in line with that of other states. Government borrowings are funding the investment in productive infrastructure that will grow the state’s economy.

 

 

Queensland’s net worth (that is, the amount by which the State’s assets exceeds its liabilities) continues to increase. At the same time, the State’s long-term financial liabilities, including accruing superannuation liabilities and WorkCover, continue to be fully funded.

 

 

Non-financial Public Sector debt will continue to increase over the forward estimates as a result of continued investment in economic infrastructure, however it is forecast to remain below $80 billion in 2020-21, and is almost $1.1 billion lower than forecast at the 2017-18 MYFER.

 

 

34


Budget Strategy and Outlook 2018-19

 

 

3.1

Context

The Queensland Government is delivering the best possible services and infrastructure to all communities.

The 2018-19 Budget focuses on implementing the 2017 election commitments, managing emerging fiscal pressures and continuing to deliver the Government’s commitment to grow the economy, supporting and creating jobs, and improve health and education outcomes.

The 2017 election commitments will be funded through reprioritisations and revenue measures, consistent with Putting Queenslanders First. In addition, Queensland Treasury will be continuing its work with agencies to find efficiencies in expenditure and ensure effectiveness in programs and service delivery.

Since MYFER, there has been a reduction of around $749 million over the forward estimates in expected GST funding provided by the Australian Government resulting from a decrease in Queensland’s share of the GST. This is despite an increase in GST funding in 2017-18, which is due to an increase in the overall size of the GST pool.

 

3.2

Key fiscal aggregates

The key fiscal aggregates of the General Government Sector for the 2018-19 Budget are outlined in Table 3.1 and are discussed in detail in this chapter.

 

Table 3.1

General Government Sector – key fiscal aggregates1

 

     2016-17
Actual2
$ million
     2017-18
MYFER
$ million
    2017-18
Est. Act.
$ million
    2018-19
Budget
$ million
    2019-20
Projection
$ million
    2020-21
Projection
$ million
    2021-22
Projection
$ million
 

Revenue

     56,194        56,464       58,259       57,738       58,835       59,939       62,269  

Expenses

     53,373        55,980       56,747       57,590       58,675       59,829       61,579  

Net operating balance

     2,821        485       1,512       148       160       110       690  

PNFA3

     4,634        4,965       4,905       5,927       7,557       7,396       7,081  

Fiscal balance

     536        (1,681     (604     (3,033     (3,881     (3,400     (2,636

Net Worth

     194,936        198,268       199,686       202,636       205,775       208,101       210,515  

Borrowing

     33,260        32,502       31,367       32,311       35,861       39,588       42,290  

Borrowing (NFPS)4

     71,904        71,222       69,501       70,871       75,214       79,750       83,093  

Notes:

 

1.

Numbers may not add due to rounding. Bracketed numbers represent negative amounts.

2.

Reflects published actuals.

3.

PNFA: Purchases of non-financial assets.

4.

NFPS: Non-financial Public Sector.

 

 

35


Budget Strategy and Outlook 2018-19

 

 

3.2.1

Net operating balance

Table 3.2 compares the General Government Sector net operating balance forecasts for the 2017-18 Budget and MYFER with 2018-19 Budget forecasts.

 

Table 3.2

General Government Sector – net operating balance forecasts

 

     2016-17
$ million
     2017-18
$ million
     2018-19
$ million
     2019-20
$ million
     2020-21
$ million
     2021-22
$ million
 

2017-18 Budget

     2,824        146        117        704        408        n.a.  

2017-18 MYFER

     2,821        485        165        307        531        n.a.  

2018-19 Budget

     2,821        1,512        148        160        110        690  

The anticipated 2017-18 net operating surplus of $1.512 billion compares with a forecast surplus of $485 million expected in the 2017-18 MYFER.

Since MYFER, forecast revenue has increased by $1.795 billion in 2017-18, primarily related to:

 

 

royalty revenues being higher than forecast, attributable largely to higher coal prices during 2017-18

 

 

increased grants, driven by the larger GST pool

 

 

increased dividend and income tax equivalent income, supported by increased earnings from electricity generation and network businesses.

The key drivers for a $767 million increase in expenses since MYFER include provisioning for the anticipated costs of Queensland participating in the National Redress Scheme and the Australian Government’s advance payment of Financial Assistance grants to local governments in 2017-18 for the 2018-19 financial year.

In 2018-19, General Government Sector expenses are estimated to be 1.5% higher than the 2017-18 estimated actual. Factors influencing the higher expenses in 2018-19 include increased activity in Health and Education, additional job creation initiatives, community services initiatives, and advance payments to local councils for the introduction of the new Waste Disposal Levy.

Additional measures, detailed in Budget Paper 4 Budget Measures, support the Government’s ongoing commitment to improve service delivery across the State.

Consistent with the Government’s fiscal principles, net operating surpluses are forecast across the forward estimates. For 2018-19, the estimated General Government Sector operating surplus of $148 million is marginally lower than the $165 million expected at the time of the 2017-18 MYFER.

Table 3.3 provides a breakdown of the movements in the net operating balance since the 2017-18 MYFER.

 

 

36


Budget Strategy and Outlook 2018-19

 

 

Table 3.3

Reconciliation of net operating balance, 2017-18 MYFER to 2018-19 Budget1

 

     2017-18
$ million
     2018-19
$ million
     2019-20
$ million
     2020-21
$ million
 

2017-18 MYFER net operating balance

     485        165        307        531  

Taxation revisions2

     (20      (160      (304      (407

Royalty revisions

     638        1,458        1,069        555  

GST revisions

     239        151        (278      (861

Measures3

           

Expense4

     (528      (832      (583      (561

Revenue

     —          116        474        478  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net

     (528      (716      (109      (83

Net flows from PNFC and PFC entities5

     457        186        114        93  

Australian Government funding revisions6

     (64      (515      (481      334  

Other parameter adjustments7

     303        (420      (158      (51

2018-19 Budget net operating balance

     1,512        148        160        110  

Notes:

 

1.

Numbers may not add due to rounding. Numbers indicate the impact on the operating balance. A number in brackets indicates a negative impact on the operating balance.

2.

Represents parameter adjustments to taxation revenue excluding taxation revenue measures.

3.

Reflects the operating balance impact of Government decisions since the 2017-18 MYFER.

4.

Includes anticipated costs of Queensland participating in the National Redress Scheme.

5.

Represents revisions to dividends and tax equivalent payments from, and community service obligations (CSOs) and Transport Service Contract (TSC) payments to, Public Non-financial Corporations and Public Financial Corporations, net of CSO and TSC expense measures.

6.

Represents the net impact of funding provided by the Australian Government primarily for Specific Purpose Payments and National Partnership payments and includes funding for disaster recovery expenses.

7.

Refers to adjustments largely of a non-policy nature, primarily changes in interest paid on borrowings, depreciation, swaps and deferrals.

 

3.3

Fiscal strategies

 

3.3.1

State’s operating capacity

The Palaszczuk Government is committed to the sound management of the State’s finances, while delivering high quality services to all Queenslanders. This includes managing within the State’s means and budgeting for operating surpluses in each year of the forward estimates.

This task is made more challenging by a feature of Australia’s federal system known as vertical fiscal imbalance. This imbalance occurs because the Australian Government collects the majority of the country’s revenue, including GST, but States are responsible for delivering the majority of services to the public, including health and education services.

 

 

37


Budget Strategy and Outlook 2018-19

 

 

As outlined in Chapter 7, almost half of Queensland’s revenue is from the Australian Government. This means that Queensland’s fiscal position is largely influenced by decisions made by the Australian Government, such as not renewing expiring funding agreements, resulting in a lack of certainty about the funding that will be received each year.

Chart 3.1 shows revenue and expenses growth over five years. Over this period, average annual growth in revenue is expected to be 2.07%, with expenses expected to grow 2.9%.

 

Chart 3.1

General Government Sector revenue and expenses growth

 

LOGO

At any given time, issues exist with potentially significant fiscal impacts. However, until issues have been considered by Government or formal agreements are in place, uncertainty exists as to when and if these issues will impact on the net operating balance. Therefore, until greater certainty eventuates, the potential fiscal impacts of such issues are not included in the forward estimates.

Such issues include:

 

 

Share of future GST revenue: The Australian Productivity Commission has completed an inquiry into horizontal fiscal equalisation – the principle underpinning the distribution of GST revenue to the states and territories. At the time of finalising the 2018-19 Budget Papers, states have not been provided with the final report. The recommendations have the potential to significantly change the amount of GST revenue that Queensland receives.

 

 

Long-term School Funding Agreement: The Australian Government is currently in negotiation with State and Territory governments to renew a new five-year School Funding Agreement from 1 January 2019. The agreement may require Queensland to increase school funding over the coming years, based on a new funding methodology. States and Territories are negotiating the terms of the agreement, including the measurement of the funding methodology and transition period.

 

 

38


Budget Strategy and Outlook 2018-19

 

 

 

Remote Housing: The National Partnership on Remote Housing focussed on addressing critical housing needs for Aboriginal and Torres Strait Islander people in remote communities to reduce overcrowding and improve living standards. This agreement expires 30 June 2018, and no renewed funding was provided in the 2018-19 Commonwealth Budget. Significant additional investment is required to meet the growing housing needs in remote Indigenous communities. There are also significant costs to the State related to operating and maintaining existing dwellings constructed under the expiring agreement.

Revenue

An economic environment that supports business and jobs growth, and does not place undue strain on households through policy and taxation settings, is key for any jurisdiction.

To support the delivery of election commitments, the 2017-18 MYFER reflected the Government’s adoption of four modest revenue measures:

 

 

a 0.5% increase in the land tax rate for aggregated holdings above $10 million

 

 

an increase in the Additional Foreign Acquirer Duty (AFAD) from 3% to 7%

 

 

an increase of $2 per $100 of dutiable value for vehicles valued above $100,000

 

 

a 15% point of consumption betting tax.

These measures are discussed in further detail in Chapter 4.

The Government will also introduce a Waste Disposal Levy of $70 per tonne from the first quarter of 2019, as part of a comprehensive waste management strategy.

More information on Queensland’s revenue outlook is provided in Chapter 4.

Fiscal principle supporting revenue management

Taxation per capita in Queensland is significantly lower compared to the average of other Australian states and territories, as discussed in Chapter 4. In 2018-19, Queensland’s taxation per capita of $2,808 will be $875 per capita less than the average of the other jurisdictions.

The Government also aims to support businesses and households by ensuring that own-source revenue in the General Government Sector, including user charges and royalties, remains at or below 8.5% of nominal gross state product (GSP), on average, across the forward estimates. Own-source revenue is derived from total State revenue less any grants received from external sources, mainly the Australian Government.

This principle is expected to be met over the forward estimates period, with revenue falling as a percentage of GSP. For 2018-19, General Government own-source revenue is forecast to be 8.2% of nominal GSP. This falls to 7.7% by 2021-22, with an average of 8.0% across the four years.

Expenses

The forward estimates include the Palaszczuk Government’s election commitments, as outlined in Putting Queenslanders First, which total $1.383 billion. All election commitments have been fully funded through revenue measures and over $1 billion in reprioritisation measures (excluding Queensland Health) over the forward estimates. Delivery of these measures will neither be at the cost of public service jobs nor will require the sale of strategic income-earning assets.

 

 

39


Budget Strategy and Outlook 2018-19

 

 

Between 2016-17 and 2021-22, expenses are forecast to grow at an average annual rate of 2.9% per year. More information on Queensland’s expenditure outlook is provided in Chapter 5.

Fiscal principle supporting expenses management

In the General Government sector, employee expenses equate to approximately 40% of total expenses. Increases in employee expenses reflect changes in the number of public sector employees as well as wages growth.

A key focus is to ensure a balance between delivery of high-quality services, and the discipline that underpins the Government’s commitment to fiscal sustainability.

To manage employee expenses growth, the Palaszczuk Government has adopted a fiscal principle to maintain a sustainable public service by ensuring that overall growth in full-time equivalents (FTE) employees, on average over the forward estimates, does not exceed population growth.

FTEs are estimated to increase by around 3,833 (or 1.71%) in 2018-19, with the majority of the increase being attributable to growth in health and education.

Average FTE growth over the forward estimates period from 2017-18 to 2021-22 is 1.71%. This compares to an estimated Queensland population growth of 134% annually.

Further details on FTE estimates are provided in Chapter 5, with Table 5.2 providing in-scope agencies and their FTE estimates for 2017-18 and 2018-19.

 

3.3.2

Infrastructure investment

The Palaszczuk Government is delivering essential infrastructure and capital works to meet the State’s increasing service needs and to promote increased productivity and efficiency for the State’s industries. The Government also recognises that building infrastructure benefits local communities, strengthens local economies and supports local jobs.

The Palaszczuk Government’s 2017 election commitments outlined $1.404 billion in new capital measures, including:

 

 

$353 million towards Building Better Hospitals

 

 

over $128 million towards Future Proofing the Bruce

 

 

$308 million towards Building Future Schools

 

 

$235 million towards Renewing Our Schools.

These capital measures will be funded primarily through allocations from the State Infrastructure Fund and through improved cash management practices.

As part of the 2018-19 Budget, the Government has provided further capital funding of just over $900 million for M1 Pacific Motorway upgrades and $176 million towards the Rookwood Weir.

Further information about the Government’s capital program is provided in Chapter 6 and Budget Paper 3 Capital Statement.

 

 

40


Budget Strategy and Outlook 2018-19

 

 

Box 3.1

History of purchases of non-financial assets in Queensland

As can be seen from Chart 3.2, purchases of non-financial assets (PNFA), across the entire Non-financial Public Sector, which includes the spending by government-owned corporations, increased significantly from 2003-04, peaking at $15.101 billion in 2008-09.

 

Chart 3.2

Purchases of non-financial assets, Non-financial Public Sector

 

LOGO

The unprecedented high levels of capital spending were the culmination of many unique circumstances existing at the time. These included:

 

 

responding to the prolonged drought in South East Queensland between 2001 and 2009, resulting in a range of measures, including the Gold Coast Desalination Plant, the Western Corridor Recycled Water Scheme and new dams and weirs, as well as the Government purchase of SEQ council-owned assets which formed the basis of the SEQ Water Grid

 

 

several large health-related infrastructure projects from 2007-08, peaking in 2011-12, including the construction of Lady Cilento Children’s Hospital, the Sunshine Coast University Hospital, and the Gold Coast University Hospital

 

 

ramping up of investment in electricity infrastructure from 2004-05 to meet strong growth in demand and ensuring Queenslanders could enjoy improved reliability and safety of supply

 

 

roadway infrastructure of around $500 million per year in the four years to 2010-11, prior to the divestment of Queensland Motorways Limited

 

 

Commonwealth stimulus in response to the Global Financial Crisis, which included programs such as Social Housing and the Building the Education Revolution program.

 

 

41


Budget Strategy and Outlook 2018-19

 

 

More recently, the State has entered into several finance lease type arrangements, mainly resulting from Public Private Partnerships (PPPs), which are included in the capital program but not fully reflected in purchase of non-financial assets.

Purchases of non-financial assets going forward

Going forward, the Government is, where appropriate, funding its capital program through methods other than direct PNFA. As mentioned above, PPPs, for example, provide alternative financing approaches for the development of new infrastructure or other capital.

The magnitude of spending on PNFA that occurred from the mid-to-late 2000s was brought about by a range of unique circumstances. While the capital program is forecast to increase from its 2015-16 level, it does not return to previous highs.

Chart 3.3 provides an interjurisdictional comparison over time, showing that from 2019-20, Queensland’s capital spending per capita is expected to exceed the average of other states.

 

Chart 3.3

Per capita purchases of non-financial assets, General Government Sector

 

LOGO

 

 

42


Budget Strategy and Outlook 2018-19

 

 

Improving delivery of the capital program

The Government has implemented a clear focus on improving the timely delivery of essential infrastructure in Queensland. This has resulted in an improvement in the amount of capital expenditure that is actually delivered, as a proportion of the Budget allocation.

This is demonstrated in Chart 3.4, which identifies that the proportion of budgeted purchases of non-financial assets actually delivered in 2016-17 was the highest in the past five years. Further improvement is anticipated in 2017-18, with more than 90% of budgeted purchases of non-financial assets expected to be delivered.

 

Chart 3.4

Total State purchases of non-financial assets – actual as a proportion of budget

 

LOGO

Fiscal principles supporting capital investment management

The Government has adopted two fiscal principles to ensure that there is a consistent flow of capital works and that any new capital investment is funded primarily through recurrent revenues rather than borrowings.

While the value of the total capital program can fluctuate across financial years, the 2018-19 Budget provides for an average General Government Sector PNFA of $6.990 billion across the budget and forward estimates. Total General Government Sector PNFA over the budget and forward estimates are projected at $27.961 billion.

 

 

43


Budget Strategy and Outlook 2018-19

 

 

Infrastructure funding

The General Government Sector Cash Flow Statement (refer Table 9.7) provides details of the sources of funding for capital investment. It shows that net cash inflows from operating activities equate to 99% of the funding required for the 2017-18 net General Government Sector investments in non-financial assets.

Across 2018-19 to 2021-22, net cash inflows from operating activities are budgeted to average 49.4% of the funding required, primarily reflecting the higher level of capital spending during the period.

The Government is continuing to invest in infrastructure projects that are necessary to support Queensland’s growing population and economy. Borrowings will increase to support the capital program, but are expected to remain below projections in the 2017-18 MYFER due to the stronger than expected 2017-18 operating surplus.

Gross General Government Sector borrowings of $31.367 billion at 30 June 2018 are forecast to be $1.135 billion lower than forecast in the 2017-18 MYFER and $17.054 billion less than forecast at the time of the 2014-15 Budget.

Borrowings

The history of Queensland Government debt over the past decade mirrors that of the Queensland economy. Before 2007, the economic and fiscal policies of the State reflected a transition from a low service level State, to a State with service levels comparable to other major states in Australia. This transition supported a period of sustained growth in the Queensland economy, with many significant infrastructure projects providing enhanced community facilities like schools and hospitals, along with supporting resource development as populations increased significantly across regional Queensland.

While total spending increased over this period as new major social spending programs were introduced, these costs were supported by revenues generated from the housing and mining booms, as well as increases in GST revenues arising from credit expansion. To put this into context, Queensland’s GST revenue alone grew by an average rate of 7.5% per annum across the periods 2001-02 to 2007-08.

In 2007, the global financial crisis (GFC) impacted every major economy in the world, including Queensland. Consumer confidence fell, expectations of a recession rose, and the State’s growing revenue base began to contract.

The Government at the time decided to maintain its economic development program and increase debt. This decision to continue the State’s capital program was aimed at avoiding recession during the GFC. Combined with actions from the Australian Government and the Reserve Bank, along with strong demand from China, the Queensland and Australian economies continued to grow through the GFC.    

Avoiding recession also saw Queensland avoid the economic and social effects of very high and sustained unemployment, with the State’s trend unemployment rate remaining below 6% through to late-2012.

Queensland is currently benefiting from the sustained levels of investment that occurred over the past decade, as discussed in Box 3.1.

 

 

44


Budget Strategy and Outlook 2018-19

 

 

The debt accumulated over this time was not wasted by governments, but was invested for the future benefit of Queensland, much of which is already being realised. This approach is consistent with fiscal sustainability principles which seek to spread the burden of public spending fairly across generations, with public consumption benefiting the current generation being paid for by that generation. This approach ensures intergenerational equity, with the debt associated with an investment repaid over the life of the asset or term of benefit received from the investment.

Chart 3.5 shows the ratio of borrowings to gross state product (GSP), that is, the amount of debt as compared to the state’s total output.

 

Chart 3.5

Borrowings to gross state product ratio

 

LOGO

An alternative way of assessing the appropriateness of debt levels is to consider the State’s capacity to service its borrowing costs, that is, interest payments as a proportion of revenue (as shown in Chart 3.6). This concept can be likened to a person assessing their ability to service an interest only loan.

 

 

45


Budget Strategy and Outlook 2018-19

 

 

Chart 3.6

General Government Sector – interest expense to total revenue1

 

LOGO

Note:

 

1.

Average for other states not provided for 2021-22 as not all states have released their 2018-19 Budgets.

Queensland’s ratio is projected to remain relatively flat across the forward estimates, and is only marginally higher than the average in other states.

General Government Sector net worth, which is the difference between assets and liabilities, is $200 billion, and continues to increase across the forward estimates, reflecting the State’s investment in additional assets.

Fiscal principles supporting liabilities management

A primary fiscal principle of the Queensland Government has been to reduce General Government Sector debt, to provide the Government with the capacity to respond to market and environmental shocks.

The debt to revenue measure ratio is the key measure of the sustainability of General Government Sector debt levels. The Government aims to reduce this ratio over time to continue to improve the State’s fiscal sustainability.

The General Government Sector’s debt to revenue ratio has fallen substantially over the period to 2017-18 in each successive budget since 2014-15, as seen in Chart 3.7. The debt to revenue ratio for 2017-18 falls to 54%, significantly lower than the 91% in 2012-13.

Across the forward estimates, the expected moderation in revenue growth, as well as the timing of significant capital projects and associated borrowings, sees a gradual increase in the forecast debt to revenue ratio to 2020-21. On average over the budget and forward estimates, the debt to revenue ratio is 63%, well below the four years to 2019-20 forecast in the 2016-17 Budget.

 

 

46


Budget Strategy and Outlook 2018-19

 

 

Chart 3.7

General Government Sector debt to revenue ratio

 

LOGO

The Government also remains committed to maintaining the long-standing practice of ensuring that the State sets aside assets to meet long-term liabilities such as superannuation and WorkCover, in accordance with actuarial advice.

The State Actuary’s most recent valuations indicate that, as at 30 June 2017, both the defined benefit superannuation scheme and the WorkCover scheme were fully funded.

 

 

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Budget Strategy and Outlook 2018-19

 

 

3.4

Achievement of fiscal principles

Table 3.4 provides a summary of the Government’s progress in meeting its fiscal principles’ targets.

 

Table 3.4

The fiscal principles of the Queensland Government

 

Principle

   Indicator  
     General Government debt to revenue ratio  
            2017-18 MYFER
%
     2018-19 Budget
%
 

Target ongoing reductions in Queensland’s relative debt burden, as measured by the General Government debt to revenue ratio.

     2017-18        58        54  
     2018-19        60        56  
     2019-20        63        61  
     2020-21        66        66  
     2021-22        n.a.        68  
     General Government net operating cash flows as a
proportion of net investments in non-financial assets
 
            2017-18 MYFER
%
     2018-19 Budget
%
 
                      

Target net operating surpluses that ensure any new capital investment in the General Government Sector is funded primarily through recurrent revenues rather than borrowing.

     2017-18        69        99  
     2018-19        49        60  
     2019-20        40        40  
     2020-21        53        44  
     2021-22        n.a        53  
     General Government purchases of non-financial assets  
            2017-18 MYFER
$ million
     2018-19 Budget
$ million
 
                      

The capital program will be managed to ensure a consistent flow of works to support jobs and the economy and reduce the risk of backlogs emerging.

     2017-18        4,965        4,905  
     2018-19        6,626        5,927  
     2019-20        7,486        7,557  
     2020-21        6,910        7,396  
     2021-22        n.a.        7,081  

 

 

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Budget Strategy and Outlook 2018-19

 

 

Principle

  

Indicator

 

Maintain competitive taxation by ensuring that General Government Sector own-source revenue remains at or below 8.5% of nominal gross state product, on average, across the forward estimates.

   General Government own-source revenue to GSP   
   2018-19      8.2
   Average across the forward estimates      8.0

Target full funding of long-term liabilities such as superannuation and WorkCover in accordance with actuarial advice.

  

As at the last actuarial review (as at June 2017), accruing superannuation liabilities were fully funded. The WorkCover scheme was also fully funded as at 30 June 2017.

  

Maintain a sustainable public service by ensuring that overall growth in full-time equivalents (FTE) employees, on average over the forward estimates, does not exceed population growth.

   FTE growth   
   Average across the forward estimates      1.7
   Population growth   
   Average across the forward estimates      134

 

 

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Budget Strategy and Outlook 2018-19

 

 

4

Revenue

Features

 

 

Total General Government Sector revenue is estimated to be $58.259 billion in 2017-18, $2.065 billion (or 3.7%) higher than in 2016-17 and $2.390 billion (or 4.3%) higher than estimated in the 2017-18 Budget. Higher than budgeted revenue growth in 2017-18 is due to increased revenue from royalties resulting from higher coal prices and increased GST and other revenue from the Australian Government.

 

 

Australian Government payments to Queensland in 2018-19 are expected to total $27.411 billion, representing a decrease of $694 million compared to payments in 2017-18.

 

 

Total General Government Sector revenue is estimated to be $57.738 billion in 2018-19. The decrease of $521 million (or 0.9%) from 2017-18 is largely due to reduced Australian Government grants and lower dividend and income tax equivalent income.

 

 

Total revenue is expected to grow at an average rate of 2.1% over the five years to 2021-22. Revenue growth over this period is supported by average annual growth in taxation of 5.3% and current grants of 3.0% but is also affected by declining royalties as coal prices return to medium-term levels, lower interest income due to a reduction in the portfolio of financial assets held and lower dividends.

 

 

Queensland will maintain its competitive tax status, with per capita state tax estimated at $2,808 in 2018-19, compared to an average of $3,683 for the other states and territories. Taxation as a proportion of Queensland’s economy will be 3.9% in 2018-19, down from the five-year peak of 4.3% in 2014-15.

 

 

The Government will introduce a Waste Disposal Levy of $70 per tonne from the first quarter of 2019, as part of a comprehensive waste management strategy.

 

 

The payroll tax rebate for apprentices and trainees will continue at the increased rate of 50% for an additional 12 months, until 30 June 2019.

 

 

New revenue measures to fund election commitments were announced in the 2017-18 MYFER and include a 0.5% increase to the land tax rate above $10 million, increased Additional Foreign Acquirer Duty from 3% to 7%, increased duty for premium light passenger vehicles valued above $100,000 and a 15% point of consumption tax on betting operators.

 

 

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Budget Strategy and Outlook 2018-19

 

 

4.1

2017-18 estimated actual

General Government Sector revenue in 2017-18 is estimated to be $58.259 billion, which is $2.390 billion (or 4.3%) more than the 2017-18 Budget estimate. Significant variations from the 2017-18 Budget estimates include:

 

 

a $1.012 billion (or 29.2%) increase in revenue from royalties and land rents, mainly resulting from higher coal prices continuing for longer than expected in the 2017-18 Budget

 

 

a $851 million (or 3.1%) increase in grants, driven by increased GST due to a larger GST pool, and other revenue from the Australian Government, partially offset by lower than anticipated capital grants

 

 

a $629 million (or 30.6%) increase in dividend and income tax equivalent income, supported by increased earnings from electricity generation and network businesses. Queensland’s ownership of its electricity assets enables the Government to reinvest dividends to improve affordability through the Affordable Energy Plan.

These increases were partially offset by lower than estimated revenue from sales of goods and services.

 

Table 4.1

General Government Sector revenue1

 

     2016-17
Actual
$ million
     2017-18
Budget
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Taxation revenue

     12,919        13,298        13,284        14,155        15,184        15,951        16,722  

Sales of goods and services

     5,642        6,067        5,861        5,731        5,947        6,074        6,306  

Interest income

     2,336        2,330        2,323        2,201        2,078        1,861        1,855  

Grants revenue

                    

Current grants

     24,540        25,299        26,583        26,001        26,189        27,059        28,402  

Capital grants

     2,843        2,332        1,898        1,700        1,967        2,002        1,985  

Dividend and income tax equivalent income

 

           

Dividends

     1,693        1,453        1,877        1,552        1,407        1,293        1,229  

Income tax equivalent income

     997        604        809        666        669        617        558  

Other revenue

                    

Royalties and land rents

     4,000        3,472        4,484        4,615        4,260        3,904        4,011  

Other

     1,222        1,015        1,139        1,118        1,135        1,178        1,202  

Total revenue

     56,194        55,869        58,259        57,738        58,835        59,939        62,269  

Note:

 

1.

Numbers may not add due to rounding.

 

 

51


Budget Strategy and Outlook 2018-19

 

 

4.2

2018-19 revenue by category

General Government Sector revenue in 2018-19 is estimated to be $57.738 billion, $521 million (or 0.9%) lower than the 2017-18 estimated actual revenue of $58.259 billion. The revenue reduction in 2018-19 reflects a range of factors, including:

 

 

Revenue from the Australian Government is expected to be $694 million lower in 2018-19 than in 2017-18, due to a decline in Queensland’s GST revenue sharing relativity and reduced payments for specific purposes.

 

 

Dividends and income tax equivalent income are forecast to be $469 million lower in 2018-19. Further information on these revenues can be found in Chapter 8.

Partially offsetting these decreases are moderate growth in taxation revenue (6.6%), supported by growth in the payroll tax and land tax base and new policy measures including the Waste Disposal Levy.

After increasing 11.6% in 2017-18, royalties are expected to increase 2.8% in 2018-19. While coal royalties are expected to decline 6.5% in 2018-19 due to declining hard coking coal prices, this reduction is expected to be offset by increased revenue from petroleum (including LNG) and other minerals. Trends in factors affecting royalty revenue are discussed in section 4.7.

Major sources of General Government Sector revenue in 2018-19 are grants revenue (48.0%) and taxation revenue (24.5%). Table 4.1 details revenue estimates by category, and Chart 4.1 illustrates the composition of General Government Sector revenue.

 

Chart 4.1

Revenue by operating statement category, 2018-191

 

LOGO

Notes:

 

1.

Numbers may not add due to rounding.

2.

The major component of other revenue is royalties and land rents (8.0% of total revenue)

 

 

52


Budget Strategy and Outlook 2018-19

 

 

4.3

2018-19 Budget initiatives

 

4.3.1

Extension of increased payroll tax rebate for apprentices and trainees

The Government is continuing the payroll tax rebate on the wages of apprentices and trainees at the increased rate of 50% until 30 June 2019. This rebate is in addition to their wages being exempt and will be used as an offset against payroll tax payable on the wages of other employees.

The rebate extension is estimated to reduce revenue by $26 million in 2018-19.

 

4.3.2

Waste Disposal Levy

The Government is committed to developing a comprehensive waste management strategy with a key component being the implementation of a Waste Disposal Levy. The levy will improve recycling outcomes and address interstate transportation of waste to Queensland.

The Waste Disposal Levy will commence in the first quarter of 2019 and will initially be set at $70 per tonne (higher for regulated waste) and increase by $5 per tonne per annum.

 

4.3.3

2017-18 MYFER measures

The 2017-18 MYFER outlined new revenue measures, including:

 

 

a 0.5% increase in the land tax rate for aggregated holdings above $10 million

 

 

an increase in Additional Foreign Acquirer Duty (AFAD) from 3% to 7%

 

 

an increase of $2 per $100 of dutiable value for premium light passenger vehicles

 

 

a 15% point of consumption tax on the net wagering revenue of betting operators licenced in Australia from bets placed in Queensland.

Land tax, AFAD and motor vehicle duty measures will apply from 1 July 2018. The point of consumption betting tax will apply from 1 October 2018, and is discussed further in section 4.5.4.

Further detail on these measures, including expected additional revenue, is included in Budget Paper 4 Budget Measures.

 

 

53


Budget Strategy and Outlook 2018-19

 

 

4.4

Queensland’s revenue trends

Chart 4.2 examines the contribution of the key revenue sources of GST, taxation and royalties to revenue growth. GST was the largest driver of growth in 2017-18, due to increases in both the GST pool distributed to states and Queensland’s share of the pool as determined by the Commonwealth Grants Commission. In 2018-19, taxation revenue contributes the largest proportion to growth, with a smaller increase to royalties expected as increasing petroleum royalty revenue is partially offset by decreasing coal royalties. Lower GST revenue is expected in 2018-19 compared to 2017-18, due to Queensland receiving a reduced share of the GST pool.

Total revenue growth, which is mainly driven by these three sources, is estimated to be 2.1% on average over the five years to 2021-22. This is far lower than the 7.6% average growth over the last fifteen years to 2016-17.

 

Chart 4.2

Contribution to growth of key revenues1

 

LOGO

Note:

 

1.

Annual percentage point contribution to growth of the aggregate of three categories (GST, royalties and taxes). Total is the annual % growth in revenues of the aggregate of the three categories.

Total revenue growth over the forward estimates is mainly driven by moderate taxation revenue growth, averaging 5.3% over the five years to 2021-22, supported by expected growth in major taxes such as payroll tax, transfer duty and land tax, and also by the introduction of the Waste Disposal Levy. Taxation revenue as a proportion of Queensland’s economy will remain stable over this period rising only slightly from 3.9% in 2018-19 to 4.0% in each year to 2021-22, below the recent peak of 4.3% in 2014-15.

Total royalty revenue is expected to decline in 2019-20 and 2020-21 in line with declining coal prices. GST revenue increased by 9.1% in 2017-18, but is expected to decline in 2018-19 and 2019-20 due to Queensland’s share of the GST pool reducing, with modest growth forecast from 2020-21 as the GST pool increases. Over the four years to 2021-22, GST revenue growth is expected to average 0.8% per year.

 

 

54


Budget Strategy and Outlook 2018-19

 

 

4.5

Taxation revenue

Total revenue from taxation is expected to grow by 6.6% in 2018-19, following an estimated increase of 2.8% in 2017-18. Chart 4.3 indicates the composition of estimated State taxation revenue for 2018-19. The largest sources are payroll tax and transfer duty, which together represent around 52% of the State’s total taxation revenue in 2018-19.

 

Chart 4.3

State taxation by tax category, 2018-191

 

LOGO

Note:

 

1.

Percentages may not add to 100% due to rounding. ‘Other duties’ includes vehicle registration duty, insurance duty and other minor duties. ‘Other taxes’ includes the Emergency Management Levy, Waste Disposal Levy, guarantee fees and other minor taxes.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Table 4.2 shows the main components of taxation revenue.

 

Table 4.2

State taxation revenue1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Payroll tax

     3,695        3,887        4,086        4,312        4,574        4,850  

Duties

                 

Transfer

     3,278        3,090        3,214        3,396        3,578        3,768  

Vehicle registration

     514        543        592        621        651        682  

Insurance2

     854        900        945        992        1,042        1,094  

Other duties3

     37        34        35        37        39        40  

Total duties

     4,684        4,567        4,786        5,046        5,309        5,584  

Gambling taxes and levies

                 

Gaming machine tax

     684        718        750        784        819        819  

Health Services Levy

     73        85        93        103        113        124  

Lotteries taxes

     241        258        266        274        282        291  

Betting taxes4

     10        10        71        96        99        101  

Casino taxes and levies

     98        103        106        109        113        113  

Keno tax

     20        20        21        21        22        23  

Total gambling taxes and levies

     1,127        1,194        1,307        1,388        1,448        1,471  

Other taxes

                 

Land tax

     1,082        1,183        1,313        1,368        1,433        1,512  

Motor vehicle registration

     1,681        1,755        1,829        1,892        1,961        2,032  

Emergency Management Levy

     484        509        536        559        583        609  

Waste Disposal Levy

     —          —          101        406        408        408  

Guarantee fees5

     115        139        150        165        186        206  

Other taxes6

     52        51        48        49        50        51  

Total taxation revenue

     12,919        13,284        14,155        15,184        15,951        16,722  

Notes:

 

1.

Numbers may not add due to rounding.

2.

Includes duty on accident insurance premiums.

3.

Includes duty on life insurance premiums.

4.

Does not account for allocation of proceeds subject to commercial-in-confidence negotiations, for example, the quantum of compensation to Racing Queensland for impacts from implementation of the betting tax.

5.

Includes competitive neutrality fees charged to government-owned corporations.

6.

Includes the Statutory Insurance Scheme Levy and Nominal Defendant Levy.

 

 

56


Budget Strategy and Outlook 2018-19

 

 

4.5.1

Queensland’s competitive tax status

Taxation can impact on business decisions regarding investment and employment, and also household investment and home ownership. Maintaining the competitiveness of Queensland’s tax system provides a competitive advantage to business and moderates the tax burden for its citizens, and is therefore fundamental to the Government’s commitment to job creation and sustainable development.

One of the Government’s fiscal principles is to maintain competitive taxation by ensuring General Government Sector own-source revenue remains at or below 8.5% of nominal gross state product (GSP), on average, across the forward estimates. Own-source revenue is the total State revenue less any grants received from external sources, mainly the Australian Government. This principle is expected to be met over the forward estimates period, with own-source revenue below 8.5% of GSP. Chapter 3 provides more detail on the Government’s fiscal principles.

As Chart 4.4 shows, taxation per capita in Queensland is significantly lower than the average taxation per capita in the other states and territories. In 2018-19, it is estimated that Queensland’s taxation per capita of $2,808 will be $875 per capita less than the average of other jurisdictions.

 

Chart 4.4

Taxation per capita, 2018-19

 

LOGO

Sources: 2018-19 Budget for all jurisdictions except New South Wales, South Australia and Tasmania where 2017-18 mid-year updates are used. Population estimates from the 2018-19 Commonwealth Budget.

 

 

57


Budget Strategy and Outlook 2018-19

 

 

Table 4.3 demonstrates that the Queensland tax system remains amongst the most competitive in Australia, using various measures of tax competitiveness.

Queensland’s tax effort, as measured by the Commonwealth Grants Commission, was 14.9% below the national average in 2016-17. A third measure of competitiveness, taxation as a share of GSP, also confirms that Queensland’s taxes are competitive with other states.

 

Table 4.3

Queensland’s tax competitiveness

 

     NSW      Vic.      Qld      WA      SA      Tas.4      ACT5      NT4      Avg6  

Taxation per capita1($)

     4,090        3,686        2,808        3,382        2,674        2,277        4,518        2,198        3,683  

Taxation effort2 (%)

     103.9        105.0        85.1        102.4        102.8        89.3        97.3        84.2        100.0  

Taxation % of GSP3 (%)

     5.4        5.3        4.0        3.4        4.3        3.8        4.4        2.3        4.9  

Notes:

 

1.

2018-19 data. Sources: 2018-19 Budget for all jurisdictions except New South Wales, South Australia and Tasmania, where 2017-18 mid-year updates are used. Population data from Commonwealth 2018-19 Budget.

2.

2016-17 data. Source: Commonwealth Grants Commission 2018 Update – total tax revenue effort for assessed taxes (payroll, transfer duty, land tax, insurance duty and motor vehicle taxes). Revenue raising effort ratios are an indicator of the extent to which governments burden their revenue bases.

3.

2016-17 data. Sources: Australian Bureau of Statistics 5506.0 and ABS 5220.0.

4.

Low taxation per capita primarily reflects the lower revenue raising capacity of those jurisdictions.

5.

Figures include municipal rates.

6.

Weighted average of states and territories, excluding Queensland (aside from taxation effort, which is the average of all states).

 

4.5.2

Payroll tax

The overall payroll tax rate of 4.75% is the lowest in Australia and the exemption threshold of $1.1 million is the highest threshold of any mainland state. Queensland employers with total yearly Australian taxable wages between $1.1 million and $5.5 million also obtain a partial deduction, with the deduction withdrawn at a rate of $1 in every $4 of taxable wages.

In addition to the wages of eligible apprentices and trainees being exempt from payroll tax, a 25% payroll tax rebate was applied to these wages from 1 July 2015. To offer an added incentive for businesses to employ apprentices and trainees, the rebate was increased to 50% from 1 July 2016 to 30 June 2018. In this Budget, the increased rebate has been extended a further 12 months, and will provide additional support to businesses employing apprentices and trainees to 30 June 2019.

Payroll tax collections are estimated to be $4.086 billion in 2018-19, representing growth of 5.1% on 2017-18. The 2017-18 estimated actual is 1.8% higher than forecast in the 2017-18 Budget, with key sectors such as construction, manufacturing and mining and associated industries contributing to growth for the first time in two years.

The average annual payroll tax growth is forecast to be 5.6% over the five years to 2021-22, compared to the average of 7.8% over the period from 2001-02 to 2016-17.

 

 

58


Budget Strategy and Outlook 2018-19

 

 

4.5.3

Duties

Duties are levied on a range of financial and property transactions. The major duties include transfer, vehicle registration and insurance duties.

Transfer duty

Transfer duty is charged at various rates on the transfer of real and business property. The Queensland Government offers extensive concessions for the transfer of land where the property is purchased as a home. For example, eligible home buyers pay a 1% concessional rate on dutiable values up to $350,000, rather than the normal schedule of rates between 1.5% and 3.5% for those values. If a first home buyer purchases a property up to $500,000 they will pay no duty, with reduced rates available up to $550,000.

Revenue from transfer duty is expected to be 4.0% higher in 2018-19 than in 2017-18. This follows a fall of 5.7% in 2017-18 that was largely due to a reduction in large non-residential transactions. Growth in 2018-19 is expected to be driven by modest growth in residential and non-residential transactions and the 1 July 2018 rate increase for additional foreign acquirer duty.

Over the five years to 2021-22, transfer duty is estimated to grow by 2.8% on average per annum.

Vehicle registration duty

Vehicle registration duty is charged on the dutiable value of a motor vehicle on the transfer or initial registration, with a general rate of 2% to 4% dependent on the number of cylinders or rotors of the vehicle. From 1 July 2018, an additional $2 per $100 of dutiable value will be applied for vehicles valued above $100,000.

Revenue from vehicle registration is expected to grow by 9.1% in 2018-19 following growth of 5.6% in 2017-18, with the higher growth due to the introduction of the premium motor vehicle duty from 1 July 2018.

 

4.5.4

Gambling taxes and levies

A range of gambling activities are subject to State taxes and levies. Total gambling tax and levy collections are estimated to grow by 9.5% in 2018-19, and 5.5% on average over the five years to 2021-22, with these growth rates supported by increased revenue from the new point of consumption tax on betting (betting tax).

Responding to changing consumer behaviour facilitated by increased use of online and interactive technologies, a 15% betting tax will apply from 1 October 2018. The revised date for commencement allows for industry preparation for commencement of the tax, post enactment. Forecasts as at the 2017-18 MYFER were based on the betting tax applying to online wagering only and before allocation of proceeds. Some of these allocations are subject to commercial-in-confidence discussions/negotiation.

 

 

59


Budget Strategy and Outlook 2018-19

 

 

The betting tax will be implemented in line with other states and territories including South Australia, Victoria, and the Australian Capital Territory. As such, the tax will apply to the net wagering revenue of betting operators licensed in Australia from bets placed by customers in Queensland. This change, and the gross revenue amount excluding allocations of proceeds subject to commercial-in-confidence discussions/negotiation, account for the increased gross revenue from this tax since the 2017-18 MYFER.

Smaller betting operators will not incur a betting tax liability as the rate of 15% applies to taxable wagering revenue exceeding an annual tax-free threshold amount of $300,000. No tax will be paid on a betting operator’s revenue up to and including $300,000 in a financial year. Reconciliation against the threshold in the annual return, and refund provisions for any overpayment, will ensure this. In 2018-19 there will be a proportionate reduction of the tax-free threshold to reflect the 1 October commencement. The new point of consumption betting tax replaces the existing place of supply wagering tax that applied only to the sole retail wagering licensee in Queensland.

 

4.5.5

Land tax

Land tax is levied on the taxable value of the landowner’s aggregated holdings of freehold land owned in Queensland as at midnight on 30 June each year. The principal place of residence is deducted from the value.

Resident individuals are generally liable for land tax if the total taxable value of the freehold land owned by that person as at 30 June is equal to or greater than $600,000. Companies, trustees and absentees are liable for land tax if the total taxable value of the freehold land owned as at 30 June is equal to or greater than $350,000.

Land tax is estimated to grow by 11% to $1.313 billion in 2018-19, largely due to the new marginal tax rate on land holdings above $10 million from 1 July 2018, along with growth in land values in recent years.

 

4.5.6

Tax expenditures

Tax expenditures are reductions in tax revenue that result from the use of the tax system as a policy tool to deliver Government policy objectives. Tax expenditures are provided through a range of concessions, including tax exemptions, reduced tax rates, tax rebates, tax deductions and provisions which defer payment of a tax liability to a future period. Appendix B provides details of tax expenditure arrangements currently provided by the Queensland Government.

 

4.6

Grants

Grants revenue is comprised of Australian Government grants, grants from the community and industry, and other miscellaneous grants. The 2.7% decline in grants revenue in 2018-19 is driven by a decline in GST revenue and payments for specific purposes from the Commonwealth.

 

 

60


Budget Strategy and Outlook 2018-19

 

 

Table 4.4

Grants revenue1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Current grants

                 

GST revenue

     13,939        15,210        14,794        14,598        14,946        15,699  

Other Australian Government grants

     10,302        11,066        10,950        11,333        11,862        12,454  

Other grants and contributions

     299        307        257        258        251        249  

Total current grants

     24,540        26,583        26,001        26,189        27,059        28,402  

Capital grants

                 

Australian Government grants

     2,742        1,828        1,667        1,957        1,993        1,935  

Other grants and contributions

     101        70        33        10        9        50  

Total capital grants

     2,843        1,898        1,700        1,967        2,002        1,985  

Total Australian Government2

     26,983        28,105        27,411        27,888        28,802        30,088  

Total grants revenue

     27,383        28,481        27,701        28,156        29,062        30,387  

Notes:

 

1.

Numbers may not add due to rounding.

2.

Queensland Treasury estimates. Differs from Chapter 7 due to the inclusion of direct Australian Government payments to Queensland agencies for Commonwealth own purpose expenditure.

 

4.6.1

Australian Government payments

Australian Government payments to Queensland in 2018-19 are expected to total $27.411 billion, representing a decrease of $694 million compared to payments in 2017-18. This decrease is made up of a $415 million (2.7%) decrease in GST revenue and a $278 million (2.2%) decrease in total payments for capital and other Australian Government grants.

The decline in GST revenue is due to Queensland receiving a reduced share of the GST pool in 2018-19, based on Commonwealth Grants Commission recommendations. The decrease in payments for specific purposes is mainly due to lower national partnership (NP) payments, particularly the cessation of the National Partnership on Remote Housing.

Chapter 7 provides detailed background on federal-state financial arrangements, including Queensland’s share of GST revenue and other Australian Government payments to Queensland.

 

4.6.2

Other grants and contributions

Other grants and contributions are funds received from other state and local government agencies, other bodies and individuals. Contributions exclude Australian Government grants and user charges. The main sources of contributions are those received from private enterprise and community groups to fund research projects and community services and contributed assets and goods and services received for a nominal amount.

 

 

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4.7

Royalty revenue

The State earns royalties from the extraction of coal, base and precious metals, bauxite, petroleum and gas, mineral sands and other minerals. Royalties ensure some of the proceeds of the extraction of non-renewable resources are returned to the community. Land rents are also earned from pastoral holdings, and mining and petroleum leases. Royalties and land rents are detailed in Table 4.5.

 

Table 4.5

Royalties and land rents1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Coal

     3,405        3,768        3,522        3,135        2,774        2,866  

Petroleum2

     98        188        447        446        438        450  

Other royalties3

     376        371        479        506        515        506  

Land rents

     122        157        167        172        178        189  

Total

     4,000        4,484        4,615        4,260        3,904        4,011  

Notes:

 

1.

Numbers may not add due to rounding.

2.

Includes CSG.

3.

Includes base and precious metals and other minerals royalties.

The largest factor affecting upwards revisions to royalties since the 2017-18 Budget is the continued strength in the hard coking coal price, resulting in a significant uplift to price assumptions across 2018-19 and a more gradual return to a medium-term price assumption. While royalty revenue estimates in the 2017-18 MYFER were based on an expectation the hard coking coal price would decline from the end of 2017, prices increased further in the first few months of 2018 before declining on average between March and May 2018. Prices are expected to continue to progressively decline to a medium-term price of $US130/t.

There is a high degree of uncertainty associated with estimates of commodity prices, which can have significant impacts on royalty revenue. Risks to coal export volumes also have the potential to impact royalty estimates, though changes to export volumes may in turn impact prices. Specific risk factors are considered in developing forecasts and include the level of exposure of mining operations to the risk of natural disasters and the timing of scheduled maintenance for the rail network and ports. For 2018, the potential for reduced throughput over the Aurizon Network following the economic regulator’s draft decision on the 2017 Draft Access Undertaking is also a consideration, although any impact is not expected to be significant and coal exports are expected to be higher overall in 2018-19. Appendix C outlines the sensitivity of coal royalty estimates to individual changes in price, volume and exchange rate parameters.

 

 

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At the same time, the contribution of royalties to overall revenue growth and volatility is limited by its quantum. Royalties make up 7.7% of total revenue in 2018-19, compared to 24.5% for state taxes and 25.6% for GST.

Royalty revenue exceeded the previous 2008-09 peak for the first time in 2016-17, and increased by a further 11.6% in 2017-18 as coal prices remained strong and petroleum (including LNG) royalties increased.

While royalties are expected to grow modestly in 2018-19, a gradual decline of 3.1% is expected per year on average over the four years to 2021-22. While the coal price is expected to decline 9.9% per year on average as it returns to medium-term levels, total royalties are expected to be supported by growth in other factors, such as coal volumes and stronger petroleum revenue from increased Brent oil prices.

Assumptions underlying the royalty estimates, and the sensitivity of royalty estimates to changes in the assumptions are contained in Appendix C.

 

4.7.1

Coal Royalties

Chart 4.5 shows coking coal price forecasts compared to the 2017-18 Budget and average quarterly price from the latest Consensus Economics forecasts. Consensus Economics is a monthly survey of more than 40 energy and metals analysts outlining their price forecasts for a range of commodities. The Australian Government’s 2018-19 Budget assumed that the coking coal spot price would fall over the June and September quarters of 2018 to reach US$120 per tonne by the December 2018 quarter.

Revisions since the 2017-18 Budget are in line with Consensus Economics forecasts in the next few years, with a degree of conservatism in the medium-term.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Chart 4.5

Coking coal price forecasts by iteration1

 

LOGO

Sources: Queensland State Budget 2017-18 and 2018-19 and Consensus Economics Energy and Metals May 2018.

Hard coking coal prices increased sharply in the second half of 2016, driven by factors such as a program of rationalisation for China’s coal production, as well as logistical bottlenecks and seaborne supply constraints. Across 2017, coal prices remained above the historical average shown in Chart 4.6 but displayed moderate volatility, declining rapidly in the early months of 2017 but increasing again following Severe Tropical Cyclone Debbie. While strengthening global economic conditions are supporting a continued strength in coal prices during 2018, royalty forecasts incorporate a gradual decline in coal prices to $US130/t by 2020-21.

On a year average basis, the premium hard coking coal price is estimated to increase 2.6% in 2017-18 to $US198 per tonne, and is expected to decline 18.5% to $US161 per tonne in 2018-19.

 

 

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Chart 4.6

Coking coal price

 

LOGO

Source: Consensus Economics and Queensland Treasury.

 

4.7.2

Petroleum royalties

Oil prices factor strongly into royalty forecasts, with most of the LNG produced in Queensland sold under long-term contracts linked to oil prices. Since the 2017-18 Budget, estimates of Brent oil prices have been revised up by 28.8% to $US73 per barrel on average in 2018-19. Prices are expected to moderate from current levels as the impact of temporary factors affecting supply is reduced, leading to smaller royalty increases in 2019-20 and 2020-21. Oil prices are expected to remain steady from 2019-20, consistent with expectations for production and consumption remaining at similar levels. Forecasts of the Brent oil price are detailed in Appendix C and are similar to Consensus Economics forecasts. Forecasts of LNG volumes are similar to the 2017-18 Budget.

Significant growth in LNG exports over the last few years is supporting growth in petroleum royalty forecasts. Efforts to support LNG industry growth in Queensland also has broader benefits including job creation, and in turn supports increased revenue collection by the Australian Government.

Petroleum royalties have been revised up by $253 million in 2018-19 since the 2017-18 Budget, mainly resulting from increased Brent oil prices. The value of coal seam gas, which is largely based on export LNG prices less allowable deductions, has meant that increased oil prices have had a proportionally larger impact on petroleum royalties.

 

 

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4.7.3

Other royalties

Other royalties include revenue from metals mined in Queensland such as copper, lead and zinc and other minerals including bauxite. Revenue from other royalties is expected to grow 29.0% in 2018-19, supported by a stronger outlook for base and precious metals prices. This follows small declines of 1.4% in 2016-17 and 1.2% in 2017-18.

 

4.7.4

Land rents

Revenue from land rents derived from mining and petroleum leases and pastoral holdings are expected to grow 6.1% in 2018-19.

 

4.8

Sales of goods and services

Sales of goods and services revenue comprises cost recoveries from providing goods or services. Table 4.6 provides a breakdown of the category.

The Government provides concessions in the form of discounts, rebates and subsidies to improve access to and the affordability of a range of services for individuals or families, based on eligibility criteria relating to factors such as age, income and special needs or disadvantage. Appendix A provides details of the concession arrangements provided by the Queensland Government.

 

Table 4.6

Sales of goods and services1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Fee for service activities

     2,370        2,377        2,135        2,221        2,199        2,202  

Public Transport: South East Queensland

     356        338        344        353        362        363  

Rent revenue

     533        577        597        628        661        830  

Sale of land inventory

     65        52        59        66        97        98  

Hospital fees

     794        859        879        892        907        919  

Transport and traffic fees

     398        426        448        467        485        504  

Other sales of goods and services

     1,127        1,233        1,269        1,320        1,363        1,390  

Total

     5,642        5,861        5,731        5,947        6,074        6,306  

Note:

 

1.

Numbers may not add due to rounding.

 

 

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Budget Strategy and Outlook 2018-19

 

 

4.8.1

Fee for service activities

Major items of fee for service activities across the General Government Sector include:

 

 

recoverable works carried out by the Department of Transport and Main Roads and the commercialised arm of the department

 

 

fees charged by Technical and Further Education (TAFE) colleges

 

 

fees charged by CITEC to commercial clients for information brokerage services.

 

4.8.2

Other sales of goods and services

As shown in Table 4.6, there are a variety of other types of sales of goods and services. These include revenue from public transport ticketing arrangements, rent or lease of government property, hospital fees, transport and traffic fees, title registration fees and other licences and permits.

 

4.9

Interest income

Interest income primarily comprises interest earned on investments, including those held for superannuation and insurance purposes.

Interest income is estimated to account for 3.8% of total General Government Sector revenue in 2018-19. Consistent with the 2017-18 Budget, interest income is expected to decline between 2017-18 and 2021-22 due to a reduction in the portfolio of financial assets held for defined benefit superannuation and in the Queensland Government Insurance Fund.

 

4.10

Dividend and income tax equivalent income

Dividend and income tax equivalent income accounts for 3.8% of total General Government Sector revenue in 2018-19.

Estimated revenue from dividend and income tax equivalent income in 2017-18 has been revised upwards by $629 million since the 2017-18 Budget, supported by increased earnings from electricity generation and network businesses. In 2018-19, dividend and income tax equivalent income is expected to decline $469 million mainly from the electricity generation and electricity network sectors. Dividend and income tax equivalent income is expected to decline over the four years to 2021-22, driven by reductions in dividend returns from the electricity network, electricity generation and water sectors. Trends in dividends and income tax equivalent income are discussed in more detail in Chapter 8.

 

 

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Budget Strategy and Outlook 2018-19

 

 

4.11

Other revenue

Other revenue, including royalty revenue, accounts for 9.9% of total General Government Sector revenue in 2018-19. Royalties themselves account for 7.7% of revenue in 2018-19, and are discussed in section 4.7.

The major fines and infringements included in this category are issued by the Department of Transport and Main Roads (DTMR) and Queensland Police Service (QPS), incorporating fixed and mobile camera offences, speeding and tolling offences. Revenue from fines and forfeitures are expected to grow by 11.5% in 2018-19.

 

Table 4.7

Other revenue1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Royalties and land rents

     4,000        4,484        4,615        4,260        3,904        4,011  

Fines and forfeitures

     375        400        446        471        507        520  

Revenue not elsewhere classified

     847        739        672        664        672        682  

Total

     5,222        5,623        5,733        5,395        5,083        5,212  

Note:

 

1.

Numbers may not add due to rounding.

 

 

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Budget Strategy and Outlook 2018-19

 

 

5

Expenses

Features

 

 

The 2018-19 Budget continues to target initiatives that drive more inclusive economic growth and job creation, reduce the cost of living pressures and enhance the safety, security and liveability of Queensland communities.

 

 

Expenses for 2017-18 are estimated to be $56.747 billion, an increase of $3.374 billion (or 6.3%) from 2016-17. The increase is due to growth funding to support ongoing demand for health services and student enrolments, expenditure in relation to the final preparation and delivery of the Gold Coast 2018 Commonwealth Games and establishment of a provision for the anticipated costs of Queensland participating in the National Redress Scheme for Survivors of Institutional Child Sexual Abuse (National Redress Scheme).

 

 

Total expenses are projected to grow at an average annual rate of 2.9% over the five years to 2021-22. This is a reduction from last year’s budget projected rate of 3.2% over the five years to 2020-21.

 

 

In 2018-19, General Government Sector expenses are estimated to be $57.590 billion, an expected increase of $843 million (or 1.5%) over the estimated actual for 2017-18. The increase is a result of continued demand growth in education, health and community services.

 

 

The average growth in employee expenses over the five years to 2021-22 is 4.5% per annum, reflecting growth in full time equivalents (FTEs) and the Government’s wages policy.

 

 

In 2018-19, the major areas of expenditure are health and education, which together constitute approximately 54.4% of General Government Sector expenses, the highest ever proportional spend on these services.

This chapter provides an overview of General Government Sector expenses for the estimated actual for 2017-18, forecasts for the 2018-19 Budget year and projections for 2019-20 to 2021-22. The forward estimates are based on the economic projections outlined in Chapter 2.

 

5.1

2017-18 estimated actual

General Government Sector expenses in 2017-18 are estimated to be $56.747 billion, $767 million higher than the 2017-18 Mid Year Fiscal and Economic Review (MYFER) estimate. The increase since MYFER is largely driven by provisioning for the anticipated costs of Queensland participating in the National Redress Scheme for Survivors of Institutional Child Sexual Abuse, and the Australian Government’s advance payment of financial assistance grants to local governments in 2017-18 for the 2018-19 financial year.

 

 

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Budget Strategy and Outlook 2018-19

 

 

5.2

2018-19 Budget and out-years

 

Table 5.1

General Government Sector expenses1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
     2019-20
Projection
$ million
     2020-21
Projection
$ million
     2021-22
Projection
$ million
 

Employee expenses

     21,258        22,838        23,807        24,645        25,541        26,466  

Superannuation interest costs

     514        665        667        717        774        778  

Other superannuation expenses

     2,661        2,819        2,887        2,933        2,957        3,001  

Other operating expenses

     15,582        17,382        15,774        15,119        15,291        15,745  

Depreciation and amortisation

     3,068        3,330        3,429        3,543        3,650        3,776  

Other interest expenses

     1,722        1,616        1,474        1,643        1,691        1,794  

Grants expenses

     8,568        8,096        9,552        10,075        9,926        10,019  

Total Expenses

     53,373        56,747        57,590        58,675        59,829        61,579  

Note:

 

1.

Numbers may not add due to rounding.

General Government Sector expenses of $57.590 billion in 2018-19 represent an increase of $843 million (or 1.5%) over the 2017-18 estimated actual. Factors influencing the higher expenditure in 2018-19 include:

 

 

delivery of the Government’s election commitments including additional frontline nurses, police and firefighters

 

 

growth in demand for health services

 

 

growth in education expenditure reflecting student enrolment growth in Queensland schools, enterprise bargaining outcomes, maintaining secondary curriculum offerings for the half year cohort of students going into senior secondary and review of salary classification of school administration and support staff

 

 

job creation initiatives including Works for Queensland, Back to Work Packages, Skilling Queenslanders for Work and Jobs and Regional Growth package

 

 

community services initiatives continuing to improve the child protection system and support of the transition of disability services to the National Disability Insurance Scheme (NDIS)

 

 

costs associated with the introduction of the new Waste Disposal Levy including implementation costs, advance payments to local councils and industry support funding.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Expenditure largely isolated to 2017-18 for the delivery of Gold Coast 2018 Commonwealth Games and the provision for the anticipated cost of Queensland’s participation in the National Redress Scheme contribute to the observed reduced growth in 2018-19 expenses. Growth in 2018-19 is also impacted by the Australian Government’s advance payment of financial assistance grants in 2017-18 for 2018-19 and the 2018-19 whole-of-Government reprioritisation measures (refer to Budget Paper 4 Budget Measures).

 

5.3

Expenses by operating statement category

As outlined in Chart 5.1, the largest expense categories in the General Government Sector in 2018-19 are employee and superannuation expenses (47.4%), followed by other operating expenses (27.4%) that reflect non-labour costs of providing goods and services to government and non-government recipients including consultancies and contractors, transport service contract payments and repairs and maintenance.

 

Chart 5.1

Expenses by operating statement category, 2018-19

 

LOGO

Chart 5.2 identifies the growth in expenses for each operating statement category between the 2017-18 estimated actual and the 2018-19 Budget. The fastest growth is in grant expenses, which primarily reflects the change in service delivery model of disability services with the State progressively transitioning to the National Disability Insurance Scheme (NDIS).

 

 

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Budget Strategy and Outlook 2018-19

 

 

Chart 5.2

Growth in expenses by operating statement category - 2017-18 estimated actual to 2018-19 Budget

 

LOGO

 

5.3.1

Employee expenses

Employee expenses include salaries and wages, annual leave and long service leave.

In 2018-19, employee expenses are expected to be $23.807 billion, $969 million or 4.2% higher than the 2017-18 estimated actual. This reflects both growth in full-time equivalents (FTEs) and the Government’s 2.5% wages policy. Much of the increase in employee expenses in 2018-19 is the key frontline service areas of health and education reflecting increasing demand for health services and student population growth.

Full-time equivalents

During the 2015 election, the Government made commitments to revitalise frontline service delivery. This resulted in FTEs increasing 14,269 (or 7.1%) in 2015-16 and 2016-17, and an estimated further 8,380 (or 3.88%) in 2017-18. Between March 2015 and March 2018:

 

 

teachers increased by 3,634 (or 8.6%)

 

 

teacher aides increased by 1,135 (or 12.2%)

 

 

nurses increased by 4,828 (or 17.3%)

 

 

health practitioners increased by 1,488 (or 15.2%)

 

 

doctors increased by 1,605 (or 20.3%)

 

 

ambulance officers increased by 376 (or 10.2%)

 

 

police officers increased by 302 (or 2.7%).

 

 

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Budget Strategy and Outlook 2018-19

 

 

As at March 2018, 90.5% of public servants were engaged in frontline and frontline support roles. Chart 5.3 shows actual FTEs from 2005-06 to 2016-17 and estimated FTEs from 2017-18 to 2021-22.

 

Chart 5.3

Departmental FTEs

 

LOGO

FTE growth is moderating. FTEs are estimated to increase by around 3,833 (or 1.71%) in 2018-19, with the majority of the increase being attributable to growth in health and education. These additional FTEs will continue to reduce the number of patients waiting longer than the recommended time, relieve pressure on class sizes and continue to improve student outcomes.

Given the tight fiscal environment and the fact that employee expenses represent the State’s largest expense category, the Government introduced a new fiscal principle in the 2016-17 Budget to maintain a sustainable public service where overall growth in FTEs, on average over the forward estimates, does not exceed population growth.

The overall average annual growth rate over 2017-18 to 2021-22, based on current estimates, is 1.71%. This compares to an estimated Queensland population growth of 134% annually. To enable ongoing monitoring, the Queensland Public Service Commission (PSC) will continue to collect agency workforce data on a quarterly basis for analysis and reporting purposes.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Box 5.1

Better data to drive decision making

As noted in previous years’ Budget Paper 2 Budget Strategy and Outlook, issues have existed for many years with collecting and reporting information about FTEs in the Queensland public service.

These issues have arisen primarily due to the existence of two methodologies to calculate the number of FTEs, and scope of agencies included within the reported numbers. The Minimum Obligatory Human Resource Information (MOHRI) data is published in quarterly Workforce Profile reports and used primarily for broader human resources planning purposes. The Budget FTE number is used to monitor the actual number of FTEs being paid by an agency.

The PSC, with support from Queensland Treasury, has been working on strategies to reduce inconsistencies and improve the quality of data being reported. This has included restructuring parts of the quarterly Workforce Profile reports so that the data for agencies that are included in Budget Paper 2, Table 5.2 is shown separately from those that are not.

The Government acknowledges that there are still limitations surrounding the use of the MOHRI data. The key limitation of the MOHRI methodology is the inconsistency with how employee expenses are accounted for and monitored in agencies. Further, the complexity of the MOHRI methodology means that data on FTEs is not readily available in a timely fashion.

The Government will improve the quality of information by:

 

 

enhancing data collection, reporting and monitoring of indirect employment, such as the use of labour hire, contractors and consultants

 

 

working with agencies to improve geographical reporting, including by postcode

 

 

reviewing the contents of the Workforce Profile reports to assess whether they are meeting the needs of users or whether further opportunities exist to provide tailored reporting, to be reported on by the 2018-19 MYFER

 

 

reviewing occupational codes to identify whether any additional key occupational groups exist which should be reported upon.

The Government is also committed to ensuring that public service staff are located where they are needed in the community. Around 32% of FTEs are located outside South East Queensland, consistent with population share. Regional Action Plans show increases in key service delivery occupations across the regions.

The devolved frontline service delivery models used in some agencies continue to present challenges for FTE estimation and monitoring, in particular when funding is provided in such a way that agencies determine how to most efficiently deliver services. Consistent with last year, the 2018-19 Budget FTE estimates build in an allowance for this.

Table 5.2 shows the funded FTE positions by department and is consistent with agency Service Delivery Statements.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Table 5.2

Funded controlled FTE positions by Department1,2

 

     2017-18
Adj. Budget3
     2017-18
Est. Act
     2018-19
Budget
 

Aboriginal and Torres Strait Islander Partnerships

     315        327        324  

Agriculture and Fisheries

     2,089        2,131        2,128  

Child Safety, Youth and Women4

     4,631        4,638        4,834  

Communities, Disability Services and Seniors4,5

     2,675        2,676        2,241  

Education

     70,340        71,296        72,784  

Electoral Commission of Queensland

     56        56        60  

Employment, Small Business and Training4

     4,538        4,517        4,432  

Environment and Science

     3,074        3,083        3,093  

Housing and Public Works

     5,510        5,512        5,541  

Innovation, Tourism Industry Development and the Commonwealth Games

     193        194        173  

Justice and Attorney-General

     3,362        3,369        3,449  

Local Government, Racing and Multicultural Affairs

     178        181        188  

Natural Resources, Mines and Energy

     2,669        2,676        2,665  

Office of the Inspector-General Emergency Management

     22        22        22  

Premier and Cabinet

     480        478        467  

Public Safety Business Agency

     1,144        1,129        1,117  

Public Service Commission

     73        73        70  

Queensland Audit Office

     197        182        182  

Queensland Corrective Services4

     4,868        5,005        5,039  

Queensland Fire and Emergency Services

     3,280        3,280        3,321  

Queensland Health (total-disaggregation below)

     87,396        87,610        90,095  

Queensland Police Service

     15,463        15,566        15,696  

Queensland Treasury

     975        994        994  

State Development, Manufacturing, Infrastructure and Planning

     1,013        1,058        1,045  

The Public Trustee of Queensland

     609        611        615  

Transport and Main Roads

     7,490        7,505        7,427  

Total

     222,639        224,169        228,002  

 

 

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Budget Strategy and Outlook 2018-19

 

 

     2017-18
Adj. Budget3
     2017-18
Est. Act
     2018-19
Budget
 

Queensland Health Disaggregation

        

Health

     7,415        7,497        7,645  

Queensland Ambulance Service

     4,346        4,402        4,507  

Cairns and Hinterland Hospital and Health Service

     4,923        4,937        4,971  

Central Queensland Hospital and Health Service

     2,890        2,980        3,052  

Central West Hospital and Health Service

     373        380        373  

Children’s Health Queensland Hospital and Health Service

     3,608        3,792        3,700  

Darling Downs Hospital and Health Service

     4,315        4,396        4,549  

Gold Coast Hospital and Health Service

     7,482        7,635        8,063  

Mackay Hospital and Health Service

     2,160        2,286        2,312  

Metro North Hospital and Health Service

     15,750        15,832        16,165  

Metro South Hospital and Health Service

     12,604        13,275        12,882  

North West Hospital and Health Service

     702        716        782  

South West Hospital and Health Service

     777        806        819  

Sunshine Coast Hospital and Health Service

     6,540        5,970        6,400  

Torres and Cape Hospital and Health Service

     926        961        943  

Townsville Hospital and Health Service

     5,180        5,381        5,401  

West Moreton Hospital and Health Service

     3,243        3,284        3,572  

Wide Bay Hospital and Health Service

     3,049        3,080        3,132  

Funded unallocated FTEs6

     1,113        —          827  

Total Queensland Health

     87,396        87,610        90,095  

Notes:

 

1.

Numbers may not add due to rounding.

2.

Explanation of variations in departmental FTEs can be found in the Service Delivery Statements (SDSs). Departmental totals may include multiple tables from Service Delivery Statements, due to separate FTE tables being provided for Commercialised Business Units.

3.

Adjusted Budget reflects movements of FTEs following Machinery of Government changes only.

4.

Differs from SDSs due to departmental transfers which were not classified as Machinery of Government changes in the SDS.

5.

Decline in FTEs in 2018-19 reflects the transfer of clients with disability to the National Disability Insurance Scheme (NDIS).

6.

Funded unallocated FTEs represents estimates of additional FTEs which have not yet been allocated to particular Hospital and Health Services.

 

 

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Budget Strategy and Outlook 2018-19

 

 

5.3.2

Superannuation expenses

The superannuation interest cost represents the imputed interest on the Government’s accruing defined benefit superannuation liabilities.

In determining the State’s defined benefit superannuation liabilities, AASB 119 Employee Benefits requires the discounting of future benefit obligations using yield rates on Government bonds net of investment tax. Interest costs are calculated on a net liability approach by applying the discount rate to both the gross liability and superannuation plan assets.

Superannuation interest costs are dependent on the applicable discount rates and increase marginally over the forward estimates as these rates increase. The defined benefit scheme, which is closed to new members and subject to interest rate fluctuations, will decline over time as members leave.

Other superannuation expenses represent employer superannuation contributions to accumulation superannuation and the current service cost of the State’s defined benefit obligation (or the increase in the present value of the defined benefit obligation resulting from employee service in the current period).

 

5.3.3

Other operating expenses

Other operating expenses comprise the non-labour costs of providing goods and services, including services to government and non-government organisations, repairs and maintenance, consultancies, contractors, electricity, communications and marketing.

In 2018-19, other operating expenses are expected to be $15.774 billion, a decrease of $1.609 billion or 9.3% lower compared to the 2017-18 estimated actual.

Other operating expenses decline significantly in 2018-19 due to:

 

 

delivery of the Gold Coast 2018 Commonwealth Games in 2017-18

 

 

the Government provisioning in 2017-18 for Queensland’s participation in the National Redress Scheme

 

 

continuing transition of specialist disability services to the NDIS. Queensland’s contributions to the NDIS are reflected as grants expenses.

Other operating expenses continue to decline in 2019-20 following the final year of transition to the NDIS in 2018-19.

 

 

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Budget Strategy and Outlook 2018-19

 

 

5.3.4

Depreciation and amortisation

Depreciation and amortisation expense is an estimate of the progressive consumption of the State’s assets through normal usage, wear and tear and obsolescence. Growth in this expense category primarily reflects asset revaluations and the increasing investment in State infrastructure.

Depreciation expenses have increased since the 2017-18 MYFER in all years of the forward estimates following revisions for transport and health infrastructure.

 

5.3.5

Other interest expenses

Other interest expenses include interest paid on borrowings to acquire capital assets and infrastructure such as roads and government buildings.

Other interest expenses are estimated to decline $142 million in 2018-19 to $1.474 billion compared to $1.616 billion in 2017-18.

Interest costs have fallen significantly since the recent peak of $2.328 billion in 2014-15. The decline in General Government Sector debt servicing costs is due in part to the repatriation of surplus defined benefit superannuation assets and other balance sheet measures.

 

5.3.6

Grants expenses

Current grants include grants and subsidies to the community (such as non-state schools, hospitals, benevolent institutions and local governments) and personal benefit payments. Community Service Obligations (CSOs) are provided where Public Non-financial Corporations (PNFCs) are required to provide non-commercial services or services at non-commercial prices for the benefit of the community (for further details refer to Chapter 8).

Capital grants represent transfers to the PNFC Sector, local governments, not-for-profit institutions and other non-government entities, such as business and households (including the Queensland First Home Owners’ Grant and non-state schools) for capital purposes.

Table 5.3 provides a breakdown of grants by category and recipient type.

 

 

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Table 5.3

Grants expenses1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
 

Current

        

Grants to local government

     905        744        603  

Grants to private and not-for-profit organisations

        

State funding for non-state schools

     664        688        683  

Australian Government funding for non-state schools

     2,393        2,537        2,670  

Other

     1,220        1,434        1,514  

Grants to other sectors of government

        

Community service obligations to PNFCs

     615        499        472  

Other payments to PNFCs

     797        37        44  

Other (includes payments to NDIA)

     157        411        1,653  

Other

     437        305        238  

Total current grants

     7,189        6,656        7,878  

Capital

        

Grants to local government

     732        976        1,064  

State funding for non-state schools

     93        93        98  

Grants to private and not-for-profit organisations

     361        144        359  

Payments to PNFCs

     29        16        13  

Queensland First Home Owners’ Grants

     158        201        140  

Other

     6        10        —    

Total capital grants

     1,379        1,440        1,674  

Total current and capital grants

     8,568        8,096        9,552  

Note:

 

1.

Numbers may not add due to rounding.

In 2017-18, total grant expenses are estimated to be $8.096 billion; $472 million lower than 2016-17. This decrease is mainly due to:

 

 

the payment in 2016-17 of the $771 million Electricity Affordability grant to Energy Queensland to remove the costs of the Solar Bonus Scheme from retail electricity prices from 2017-18 to 2019-20

 

 

the Australian Government’s payment in 2016-17 of the financial assistance grants to local governments for both 2016-17 and 2017-18. The 2018-19 grant will be paid in 2017-18.

The effect of these grant payments in 2016-17 were partially offset in 2017-18 by increased funding to non-state schools, grants under the Government’s job creation programs, First Home Owners’ Grants and payments by the State to the National Disability Insurance Agency (NDIA) on the progressive transition to the NDIS.

 

 

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Budget Strategy and Outlook 2018-19

 

 

In 2018-19, total grant expenses are estimated to be $9.552 billion, an increase of $1.456 billion from 2017-18. The increase in grants expenses is mainly due to grants to other sectors of government, reflecting the change in service delivery model of disability services with the State progressively transitioning to the NDIS, higher capital grants to local councils under Natural Disaster Relief and Recovery Arrangements, waste strategy measures supported by the waste disposal levy and various election commitment expense measures. The increase in grants expenses in 2018-19 is partly offset by the Australian Government again making advance payment of the 2018-19 financial assistance grants to local councils in 2017-18.

 

5.4

Operating expenses by purpose

Chart 5.4 indicates the proportion of expenditure by major purpose classification for the 2018-19 Budget. Health accounts for the largest share of expenses (30.1%) followed by Education (24.3%).

The Australian Bureau of Statistics introduced a revised Classification of the Functions of Government Australia Framework, effective 1 July 2017, which has resulted in some reclassification of expenditure between purposes.

 

Chart 5.4

General Government Sector expenses by purpose, 2018-19

 

LOGO

 

 

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Budget Strategy and Outlook 2018-19

 

 

5.5

Departmental expenses

Data presented in Tables 5.4 and 5.5 provide a summary drawn from financial statements contained in the Service Delivery Statements (SDS). Further information on the composition of expenses, outputs delivered and factors influencing the movement in expenses can also be obtained from a department’s SDS.

 

Table 5.4

Departmental controlled expense1,2

 

     2017-18
Est. Act.
$ 000
     2018-19
Budget
$ 000
 

Aboriginal and Torres Strait Islander Partnerships

     90,905        86,868  

Agriculture and Fisheries

     470,493        481,707  

Child Safety, Youth and Women

     801,680        1,625,340  

Communities, Disability Services and Seniors

     2,130,417        868,802  

Education

     9,371,431        9,421,193  

Electoral Commission of Queensland

     58,286        48,033  

Employment, Small Business and Training

     569,445        1,074,848  

Energy and Water Supply3

     43,796        —    

Environment and Science

     548,345        813,880  

Health Consolidated4

     16,865,940        17,317,943  

Housing and Public Works

     2,193,512        2,469,903  

Innovation, Tourism Industry Development and the Commonwealth Games

     372,003        222,834  

Inspector General Emergency Management

     4,876        4,887  

Justice and Attorney-General

     1,081,575        602,728  

Legislative Assembly

     97,415        98,193  

Local Government, Racing and Multicultural Affairs

     484,553        436,063  

National Parks, Sport and Racing3

     152,700        —    

Natural Resources, Mines and Energy

     530,990        663,388  

Office of the Governor

     7,126        7,174  

Office of the Ombudsman

     8,677        9,205  

Premier and Cabinet5

     205,286        116,370  

Public Safety Business Agency

     437,286        422,577  

Public Service Commission

     15,969        14,598  

Queensland Audit Office

     42,667        43,821  

Queensland Corrective Services

     469,406        951,883  

Queensland Fire and Emergency Services

     678,022        702,492  

Queensland Police Service

     2,320,969        2,325,591  

Queensland Treasury

     321,494        256,965  

Science, Information Technology and Innovation3

     176,127        —    

State Development, Manufacturing, Infrastructure and Planning

     401,707        595,992  

The Public Trustee of Queensland

     88,154        95,362  

Transport and Main Roads

     5,728,206        5,885,706  

Total expenses

     46,769,458        47,664,346  

 

 

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Budget Strategy and Outlook 2018-19

 

 

Notes:

 

1.

Total expenses by department do not equate to total General Government expenses in Uniform Presentation Framework (UPF) terms reported elsewhere in the Budget Papers as General Government expenses include a wider range of entities including State Government statutory authorities. In addition, transactions eliminated between entities within the General Government Sector are excluded in the preparation of whole-of-Government UPF financial statements.

2.

Explanation of variations in departmental controlled expenses can be found in the Service Delivery Statements.

3.

Ceased 12 December 2017.

4.

This represents Health Consolidated in the Service Delivery Statement, which consolidates Queensland Health controlled, the Hospital and Health Services, and Queensland Ambulance Service.

5.

Excludes Corporate Administration Agency.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Table 5.5

Departmental administered expense1, 2

 

     2017-18
Est. Act.
$ 000
     2018-19
Budget
$ 000
 

Aboriginal and Torres Strait Islander Partnerships

     14,261        12,518  

Agriculture and Fisheries

     27,717        40,370  

Child Safety, Youth and Women

     494,601        5,868  

Communities, Disability Services and Seniors

     811,834        1,929,471  

Education

     3,413,315        3,550,845  

Energy and Water Supply3

     233,064        —    

Environment and Science

     71,194        139,452  

Health

     73,784        18,748  

Housing and Public Works

     23,892        52,079  

Innovation, Tourism Industry Development and the Commonwealth Games

     625,534        107,889  

Justice and Attorney-General

     400,860        415,442  

Local Government, Racing and Multicultural Affairs

     750,723        247,124  

National Parks, Sport and Racing3

     31,688        —    

Natural Resources, Mines and Energy

     335,764        533,012  

Premier and Cabinet

     137,247        123,127  

Queensland Police Service

        734  

Queensland Treasury

     6,002,470        6,049,595  

Science, Information Technology and Innovation3

     37,433        —    

State Development, Manufacturing, Infrastructure and Planning

     222,792        604,240  

The Public Trustee of Queensland

     604        —    

Total expenses

     13,708,777        13,830,514  

Notes:

 

1.

Total expenses by department does not equate to total General Government expenses in Uniform Presentation Framework (UPF) terms reported elsewhere in the Budget Papers as General Government expenses include a wider range of entities including State Government statutory authorities. In addition transactions eliminated between entities within the General Government Sector are excluded in the preparation of whole-of-Government UPF financial statements.

2.

Explanation of variations in departmental administered expenses can be found in the Service Delivery Statements.

3.

Ceased 12 December 2017.

 

 

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Budget Strategy and Outlook 2018-19

 

 

6

Balance sheet and cash flows

Features

 

 

Due to a stronger than expected 2017-18 operating surplus, borrowing in 2017-18 is expected to remain below projections in the 2017-18 MYFER and be nearly $2.4 billion lower than projected in the 2017-18 Budget.

 

 

General Government Sector debt is expected to increase slightly from $31.367 billion in 2017-18 to $32.311 billion in 2018-19. This is $1.6 billion lower than the projection for 2018-19 at the time of the 2017-18 MYFER and over $4 billion lower than 2017-18 budget.

 

 

The reduction in General Government debt in 2017-18 has provided the Government with the capacity to fund essential infrastructure and capital works over the forward estimates, while General Government debt and Non-financial Public Sector (NFPS) debt remains lower each year than predicted in the 2017-18 Budget.

 

 

The State’s net worth, the amount by which its assets exceed its liabilities, is forecast to be over $208 billion by 2020-21, $2.35 billion higher than at the time of the 2017-18 MYFER. The increase since the 2017-18 MYFER predominantly reflects lower than expected borrowing as a result of the strong 2017-18 operating surplus.

 

 

At the time of 2017-18 MYFER, net cash inflows from operating activities for 2017-18 were expected to cover 68.9% of net investments in Non-financial Assets (NFAs) for the General Government Sector. The estimated actual coverage is now expected to be nearly 100%.

 

 

The total capital program for 2018-19 Budget of $45.769 billion for the period 2018-19 to 2021-22 is comprised of $40.543 billion of Purchases of Non-financial Assets (PNFA), $4.074 billion of capital grant expenses and acquisitions of non-financial assets under finance leases of $1.151 billion.

 

6.1

Context

The balance sheet shows the projected assets, liabilities and net worth of the General Government Sector as at 30 June each financial year. It is important for the Government to maintain a strong balance sheet to provide it with stability, flexibility and capacity to deal with emerging financial and economic pressures, and to provide a strong foundation for future economic growth.

The cash flow statement shows the expected cash flows of the General Government Sector during each financial year of the forward estimates. The main difference between the accrual operating statement and the cash flow relates to the timing of cash payments and receipts and their recognition in accrual terms and the inclusion of non-cash expenses and revenues. The largest differences between accrual accounting and cash flows are in relation to depreciation and superannuation. Differences due to the timing of receipt or payment of amounts are recorded as either a receivable or payable in the balance sheet.

 

 

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Budget Strategy and Outlook 2018-19

 

 

6.2

Balance Sheet

Table 6.1 provides a summary of the key balance sheet aggregates for the General Government Sector.

 

Table 6.1

General Government Sector: summary of budgeted balance sheet1

 

     2017-18
Budget
$ million
    2017-18
Est. Act.
$ million
    2018-19
Budget
$ million
    2019-20
Projection
$ million
    2020-21
Projection
$ million
    2021-22
Projection
$ million
 

Financial assets

     60,814       61,544       59,460       58,581       58,642       58,458  

Non-financial assets

     212,407       210,900       214,752       219,987       224,570       229,016  

Total assets

     273,222       272,443       274,212       278,568       283,213       287,474  

Borrowings

     33,758       31,367       32,311       35,861       39,588       42,290  

Advances and deposits

     1,544       2,231       1,816       1,533       1,367       1,384  

Superannuation liability

     23,355       25,294       23,414       21,334       19,946       18,877  

Other provisions and liabilities

     12,642       13,865       14,034       14,065       14,211       14,407  

Total liabilities

     71,299       72,757       71,575       72,793       75,112       76,958  

Net worth

     201,922       199,686       202,636       205,775       208,101       210,515  

Net financial worth

     (10,485     (11,213     (12,115     (14,211     (16,470     (18,501

Net financial liabilities

     33,273       34,216       35,928       38,362       40,540       42,462  

Net debt

     1,622       (267     2,815       7,336       11,018       13,707  

Note:

 

1.

Numbers may not add due to rounding and bracketed numbers represent negative numbers.

 

6.2.1

Financial assets

The General Government Sector holds the equity of the State’s public enterprises, principally its shareholding in government-owned corporations (GOCs) but also Public Financial Corporations like Queensland Treasury Corporation (QTC), in much the same manner as the parent or holding company in a group of companies. The estimated investment in public enterprises is included in the General Government Sector’s financial assets.

Financial assets of $61.544 billion are estimated for 2017-18, $730 million higher than originally budgeted for 2017-18. Receivables are $333 million higher than budgeted, which includes dividends from other sectors.

Between 2017-18 and 2019-20, financial assets are projected to decrease by $2.963 billion as investments are repatriated from the actuarially assessed defined benefit superannuation fund and Queensland Government Insurance Fund (QGIF) surpluses. These repatriations, announced in previous budgets, will be used to fund the State Infrastructure Fund and additional priority capital projects as well as reducing debt.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Chart 6.1 shows forecast General Government Sector financial assets by category at 30 June 2019. Investments held to meet future liabilities, including superannuation and insurance, comprise the major part of the State’s financial assets.

 

Chart 6.1

Forecast General Government Sector financial assets by category, at 30 June 2019

 

LOGO

 

6.2.2

Non-financial assets

General Government Sector non-financial assets are estimated to total $210.9 billion at 30 June 2018, $1.507 billion lower than forecast at 2017-18 Budget and $281 million higher than in the 2017-18 MYFER.

The decrease since the 2017-18 Budget reflects the flow through of a net downward revaluation at 30 June 2017 primarily for road infrastructure assets. These revaluations were incorporated into the 2017-18 MYFER.

NFAs in 2018-19 are expected to grow by $3.852 billion over the 2017-18 estimated actuals, to be $214.752 billion at 30 June 2019. These assets consist primarily of land and other fixed assets of $207.985 billion, the majority of which are roads, schools, hospitals and other infrastructure used to provide services to Queenslanders. Other non-financial assets of $6.767 billion held by the State include prepayments and deferred income tax assets relating to GOCs.

 

 

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Budget Strategy and Outlook 2018-19

 

 

General Government Sector capital expenditure for 2018-19 is forecast to be $7.601 billion, which comprises $5.927 billion of PNFA, and $1.674 billion of capital grant expenses. In addition to these, acquisitions of non-financial assets under finance leases are forecast to be $864 million, bringing the total General Government Sector capital program for 2018-19 to $8.465 billion.

Over the four years to 2021-22, General Government Sector capital expenditure is forecast to be $32.078 billion, which comprises $27.961 billion of PNFA, and $4.117 billion of capital grant expenses. Acquisitions of non-financial assets under finance leases are forecast to be $1.151 billion, bringing the total General Government Sector capital program over the period to $33.229 billion.

General Government Sector PNFA are forecast to increase from $4.905 billion in the 2017-18 estimated actual to $7.081 billion in 2021-22. This increase reflects the Government’s commitment to providing essential infrastructure and capital works to deliver productivity enhancing infrastructure, strengthening local economies and supporting local jobs.

One of the Government’s fiscal principles targets net operating surpluses that ensure General Government Sector PNFA are funded primarily through recurrent revenues rather than borrowing. Forecast net operating cash flows from 2017-18 to 2021-22 of $17.670 billion are funding net investments in NFAs of $31.414 billion. Net cash inflows from operating activities equate to 59.7% of the funding required for the 2018-19 General Government Sector net investments in NFAs, and averages 59.3% across the period 2017-18 to 2021-22.

The State has also entered into a number of finance leases, mainly in relation to Public Private Partnerships, totalling $1.710 billion over the period 2017-18 to 2019-20, including:

 

 

$1.030 billion for New Generation Rollingstock

 

 

$430 million for the Toowoomba Second Range Crossing

 

 

$195 million for the Gold Coast Light Rail - Stage 2.

Generally, at the commencement of finance leases, the non-financial assets and the borrowings of the State increase by an equal amount to reflect the acquisition of the asset from the proponent. There are no cash impacts on the commencement of the lease - the finance lease liabilities are subsequently repaid under the terms of the Public Private Partnership agreement.

Purchases of non-financial assets by the NFPS over the period 2018-19 to 2021-22 are forecast to be $40.543 billion, which is an average of $10.136 billion per annum. With capital grant expenses of $4.074 billion, this brings total capital expenditure to $44.618 billion. In addition to this, acquisitions of non-financial assets under finance leases of $1.151 billion bring the total capital program over the period to $45.769 billion. While its primary aim is to facilitate service delivery to Queenslanders, infrastructure investment makes an important contribution to the economy and is a cornerstone of the Queensland job market, particularly in the construction industry.

 

 

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Budget Strategy and Outlook 2018-19

 

 

6.2.3

Liabilities

General Government Sector

Estimated General Government Sector liabilities of $72.757 billion in 2017-18 are $1.458 billion higher than the 2017-18 Budget. The superannuation liability was $1.939 billion higher, mainly from the flow through of actuarial adjustments at 30 June 2017, as well as lower beneficiary payments. Advances received were higher as more GOCs joined the cash management scheme and there was an increase in other liabilities, predominantly the State’s commitment to join the National Redress Scheme for Survivors of Institutional Child Sexual Abuse. Partially offsetting these increases was lower debt than expected at the time of the 2017-18 Budget mainly resulting from improved royalty revenue.

Due to the Government’s commitment to sustainable fiscal management, General Government Sector borrowing is expected to fall $1.893 billion from $33.260 billion in 2016-17 to $31.367 billion in 2017-18.

Total liabilities in the General Government Sector in 2018-19 will reduce by $1.182 billion from the 2017-18 estimated actual, predominantly due to lower superannuation liabilities. Liabilities relating to employee entitlements (principally superannuation and long service leave) are projected to total $29.302 billion at 30 June 2019, a 5.6% decrease on the 2017-18 estimated actual. The State’s defined benefit fund has been closed to new entrants since 2008. Given the age profile of those employees still in that fund, retirements are also increasing. Accordingly, the State’s superannuation liability is now declining over the forward estimates. In addition, an anticipated increase in bond rates across the forward estimates contributes to the expected decline.

General Government Sector borrowings of $32.311 billion are budgeted for 2018-19, $4.082 billion lower than the projection in the 2017-18 Budget and $1.601 billion lower than projected at the time of the 2017-18 MYFER. Borrowings are expected to increase by $10.923 billion between 2017-18 and 2021-22 in support of PNFA’s of $27.961 billion.

The composition of the General Government Sector’s forecast liabilities at 30 June 2019 is illustrated in Chart 6.2.

 

 

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Budget Strategy and Outlook 2018-19

 

 

Chart 6.2

Forecast General Government Sector liabilities by category, at 30 June 2019

 

LOGO

Borrowing in 2018-19 is budgeted to be 45% of total liabilities, compared with 53% in 2014-15, reflecting the reduction in borrowings over this period.

Non-financial Public Sector borrowings

Non-financial Public Sector borrowings of $69.501 billion are expected for 2017-18, $2.488 billion lower than expected at the 2017-18 Budget, and $1.721 billion lower than 2017-18 MYFER.

Non-financial Public Sector borrowings of $79.750 billion are now expected for 2020-21, $1.093 billion lower than expected at the 2017-18 MYFER and $1.398 billion less than the comparable 2017-18 Budget estimate. This largely reflects the Government’s commitment to fiscally responsible infrastructure investment, without substantially increasing debt.

 

6.2.4

Net financial worth

The net financial worth measure is an indicator of financial strength. Net financial worth is defined as financial assets less all existing and accruing liabilities. Financial assets include cash and deposits, advances, financial investments, loans, receivables and equity in public enterprises.

The net financial worth measure is broader than the alternative measure – net debt – which measures only cash, advances and investments on the assets side and borrowings and advances on the liabilities side.

The net financial worth of the General Government Sector for 2017-18 is estimated at negative $11.213 billion, an improvement of $1.138 billion on the 2017-18 MYFER.

 

 

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Budget Strategy and Outlook 2018-19

 

 

6.2.5

Net financial liabilities

Net financial liabilities are total liabilities less financial assets, other than equity investments in other public sector entities. This measure is broader than net debt as it includes other significant liabilities, in addition to borrowings (for example, accrued employee liabilities such as superannuation and long service leave entitlements).

The net financial liabilities of the General Government Sector for 2017-18 are estimated to be $34.216 billion. Net financial liabilities start increasing from 2018-19 mainly as borrowings increase and investments are repatriated from the actuarially assessed defined benefit superannuation fund and QGIF surplus to assist funding of priority infrastructure projects.

 

6.2.6

Net worth

The net worth, or equity, of the State is the amount by which the State’s assets exceed its liabilities. This is the value of the investment held on behalf of the people of Queensland by public sector instrumentalities.

Changes in the State’s net worth occur for a number of reasons including:

 

 

operating surpluses (deficits) that increase (decrease) the Government’s equity

 

 

revaluation of assets and liabilities as required by accounting standards. For example, the Government’s accruing liabilities for employee superannuation and long service leave are determined by actuarial assessments

 

 

movements in the net worth of the State’s investments in the Public Non-financial Corporations and Public Financial Corporations sectors

 

 

gains or losses on disposal of assets. Where the selling price of an asset is greater (less) than its value in an agency’s accounts, the resultant profit (loss) affects net worth.

The net worth of the General Government Sector in 2017-18 is estimated to be $199.686 billion. This is $2.236 billion lower than forecast in the 2017-18 Budget primarily due to downward revaluations of road infrastructure assets at 30 June 2017. From 2017-18, net worth is projected to steadily increase, mainly as a result of the growth in purchases of non-financial assets.

 

6.2.7

Net debt

Net debt is the sum of advances received and borrowings less cash and deposits, advances paid and investments, loans and placements.

Net debt for the General Government Sector in 2017-18 is estimated to be negative $267 million, $1.889 billion less than the 2017-18 Budget mainly as a result of improved royalty receipts. Net debt is forecast to increase across the forward estimates to fund priority infrastructure projects.

In the NFPS, net debt is estimated at $34.854 billion in 2017-18, $3.036 billion less than the 2017-18 Budget. Net debt is expected to increase to $39.027 billion in 2018-19 and then grow through to 2021-22 with infrastructure provision partly funded by borrowings and investment drawdowns.

 

 

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Budget Strategy and Outlook 2018-19

 

 

6.2.8

New Accounting Standards

Two new accounting standards will apply to public and private sectors in Australia from 1 July 2019, AASB 16 Leases and AASB 1059 Service Concession Arrangements, that have the potential to significantly impact balance sheets.

Currently, only finance leases are recognised on the balance sheet (and classified as borrowings for GFS purposes). The intention of the new leasing standard is to also bring operating leases onto the balance sheet of lessees. There will therefore no longer be a distinction between finance leases and operating leases for lessees.

Lessees will be required to recognise a right-of-use asset on balance sheet (representing the right to use the underlying leased asset) and a lease liability (representing the obligation to make future lease payments) for all leases except for short-term leases and leases of low-value assets. Social PPPs (such as schools) are already treated as finance leases and included on the State’s balance sheet.

For Service Concession Arrangements, the State, as grantor will recognise an asset and a matching liability which may be classified as a borrowing or unearned revenue (included in other liabilities), depending on the individual contract.

The impact of these new standards will be addressed in the 2019-20 Budget.

 

6.3

Cash flows

The cash flow statement provides the cash surplus (deficit) measure which is comprised of the net cash flows from operating activities plus the net cash flows from investments in non-financial assets (or physical capital).

The estimated General Government Sector cash deficit of $47 million in 2017-18 is $1.875 billion lower than that forecast at the time of the 2017-18 Budget. This is largely due to the higher than expected operating cash flows.

After taking into account PNFA of $5.927 billion, a cash deficit of $2.248 billion is forecast for 2018-19, an improvement of $937 million compared to the 2017-18 MYFER.

Net cash flows from investments in financial assets for policy purposes include net cash flows from disposal or return of equity, net equity injections into government-owned corporations and concessional loans and advances. Cash flows from the return of equity from the PNFC and PFC sectors are the primary driver of net inflows of $1.127 billion over the period 2017-18 to 2021-22.

Net cash flows from investments in financial assets for liquidity purposes represent net investment in financial assets to cover liabilities such as superannuation, other employee entitlements and insurance. The repatriation of surpluses in the actuarially assessed defined benefit superannuation fund and the QGIF flow through this line in the Statement of Cash Flows.

Total General Government Sector PNFA of $5.927 billion are budgeted for 2018-19 and, over the period 2018-19 to 2021-22, PNFA are expected to total $27.961 billion in the General Government Sector.

 

 

91


Budget Strategy and Outlook 2018-19

 

 

7

Intergovernmental financial relations

Features

 

 

Queensland’s ability to meet its service delivery and infrastructure responsibilities is dependent on payments from the Australian Government with over 45% of Queensland General Government revenue coming from the Australian Government.

 

 

Estimated Australian Government funding in 2018-19 for Queensland is $26.776 billion; $14.794 billion in GST revenue and $11.982 billion in payments for specific purposes (National Specific Purpose Payments and National Partnership payments).

 

 

Queensland’s GST revenue in 2018-19 is $415.2 million lower than that received in 2017-18. Queensland has a reduced GST share because of factors such as strong mining royalties and population growth below the national average in the three years to 2016-17. The Australian Government’s direction to the Commonwealth Grants Commission to exclude selected payments from GST distribution calculations has also negatively impacted Queensland’s share of GST.

 

 

In 2018-19, $11.982 billion is provided for payments for specific purposes comprising:

 

   

$4.557 billion for National Health Reform

 

   

$4.408 billion for Quality Schools

 

   

$2.034 billion for National Partnership payments, including $1.487 billion for the Infrastructure Investment Program, $158 million for Natural Disaster Relief and Recovery Arrangements (NDRRA) and $88 million for Universal Access to Early Childhood Education

 

   

$669.5 million for National Specific Purpose Payments, including $366 million for disability services, and $303.5 million for skills and workforce development

 

   

$313.6 million for National Housing and Homelessness.

 

 

Queensland is currently negotiating a number of agreements with the Australian Government. Three key agreements are the National Health Reform Agreement, Quality Schools Agreement and the National Housing and Homelessness Agreement.

 

 

Despite repeated requests from states and territories, the Australian Government has not provided greater certainty on the longevity of some funding, preferring instead to provide short-term extensions, or none at all in the case of remote housing, rather than make long-term commitments. The Australian Government also continues to impose stringent conditions in new agreements. This is inconsistent with the principles of the Intergovernmental Agreement on Federal Financial Relations.

 

 

Similarly, Queensland is particularly challenged by a lack of sufficient funding from the Australian Government towards nationally significant infrastructure projects in Queensland, most notably Cross River Rail.

 

 

92


Budget Strategy and Outlook 2018-19

 

 

7.1

Federal financial arrangements

Federal financial relations in Australia are characterised by different levels of government sharing responsibility for raising revenue and delivering services to communities. State and territory governments’ ability to raise revenue is less than required to meet their service delivery responsibilities. Alongside this, the Australian Government raises more revenue than is required to meet its service delivery responsibilities. This is called vertical fiscal imbalance (VFI), and requires the sharing of revenue between the Commonwealth and states and territories.

In 2016-17, the Australian Government collected the majority of taxation revenues (79.6%), while states and territories (states)1 collected 16.8% and local governments the remaining 3.6%2. National tax reform and other changes since 2000 have led to the Commonwealth having greater capacity to raise revenue compared to states and therefore an increase in VFI. Chart 7.1 shows that states received 35% of their revenue from the Australian Government in 1999-2000, with this forecast to significantly increase to 46.3% in 2018-193.

 

Chart 7.1

General Government revenue sources, all states, 1999-2000 and 2018-191

 

LOGO

Note:

 

1.

2018-19 are estimates.

Sources: ABS Government Finance Statistics Cat No. 5512.0 and state and Australian Government Budget Papers.

 

1 

States refer to states and territories unless otherwise specified.

2 

ABS Government Finance Statistics Cat No. 5506.0

3 

National aggregates and interstate comparisons in this chapter will use Australian Government estimates for consistency. Queensland specific figures are consistent with Queensland Budget estimates.

 

 

93


Budget Strategy and Outlook 2018-19

 

 

In Australia, VFI is addressed through a system of intergovernmental payments from the Australian Government to the states which allows the states to meet their service delivery and infrastructure responsibilities. The Australian Government provides two types of payments:

 

 

general revenue assistance payments such as the GST which are able to be used by states for any purpose (untied funding)

 

 

payments for specific purposes (tied funding) such as National Specific Purpose Payments (SPPs) and National Partnership payments (NPs) which support specific projects or service areas.

Without a contribution by the Australian Government, states would not be able to provide essential services and infrastructure.

Another feature of Australian federalism is horizontal fiscal imbalance (HFI). HFI arises from disparities between the states’ capacity to raise revenue and deliver services. Some states can raise higher revenue or deliver services at a lower cost compared to other states. Over time, this can distort capital and labour mobility towards states providing higher level of services.

To address this, GST revenue collected by the Australian Government is distributed to states in a way that ensures each is provided with the fiscal capacity to deliver the same standard of services and infrastructure to their population no matter where they live. This is known as horizontal fiscal equalisation (HFE).

The Commonwealth Grants Commission (CGC) uses the principle of HFE in recommending to the Australian Government how GST revenue should be distributed. The amount each state receives is a function of the amount of GST revenue collected (the GST pool) and the share of revenue recommended by the CGC.

In April 2017, the Australian Government directed the Productivity Commission to review the current HFE system to determine its impact and whether preferable alternatives exist. Further details are provided in Box 7.1.

 

 

94


Budget Strategy and Outlook 2018-19

 

 

Box 7.1

Productivity Commission Inquiry into HFE

The Productivity Commission’s (PC) inquiry into Australia’s system of HFE commenced on 30 April 2017. This inquiry examines the current system of distributing GST revenue to the states and its impact on productivity, efficiency, economic growth and the incentives for states to undertake fiscal reforms.

The PC released a draft report on 9 October 2017. It found that the current system achieves a high degree of equalisation but has the potential to discourage states from pursuing efficiency-enhancing reform. In response, the PC canvassed several alternative systems for distributing GST revenue. A key element of these alternative systems is that states are not equalised to deliver the same standard of services and infrastructure to their population. In each alternative system, Queensland would receive significantly less GST revenue. Under one system, the PC estimates that Queensland would have received $1.588 billion less GST in 2017-18 compared to the current system. This is equivalent to losing 5,000 teachers, 5,000 nurses, 3,000 police officers and 1,135 firefighters.

In its submission to the PC in December 2017, and at the public inquiry in Brisbane on 5 February 2018, the Queensland Government strongly advocated for the principle of HFE. It also stressed the importance of a system that recognises the different circumstances of each state so that additional funding can be directed to states with unavoidably higher service delivery costs.

The PC final report was provided to the Australian Government on 15 May 2018. At the time of finalising the 2018-19 Budget papers, states have not been provided with the report or the PC final recommendations.

 

7.2

Australian Government funding to the states

As discussed in section 7.1, total Australian Government payments to the states are made up of general revenue assistance payments and payments for specific purposes.

Total Australian Government payments for the states in 2018-19 are expected to be $126.751 billion, an increase of $4.312 billion, or 3.5%, from 2017-18.

Within this total, payments to states for specific purposes in 2018-19 are expected to be $58.554 billion, a 1.0% increase from 2017-18. These consist of:

 

 

$21.189 billion in National Health Reform funding

 

 

$19.518 billion in Quality Schools funding

 

 

$13.840 billion in National Partnership payments

 

 

$2.471 billion in National Specific Purpose Payments

 

 

$1.536 billion in National Housing and Homelessness funding.

 

 

95


Budget Strategy and Outlook 2018-19

 

 

7.3

Australian Government funding to Queensland

Estimated Australian Government funding in 2018-19 for Queensland, included in the 2018-19 Queensland Budget, is $26.776 billion4, a decrease of $523.2 million, or 1.9%, compared with 2017-18.

Australian Government funding is estimated to account for 46.4% of Queensland’s total General Government Sector revenue sources in 2018-19 (shown in Chart 7.2). Australian Government funding has grown significantly as a proportion of Queensland’s total revenue since the introduction of the GST in 2000, consistent with the broader national trend.

 

Chart 7.2

General Government Sector revenue sources, Queensland, 2018-191

 

LOGO

Note:

 

1.

Percentage may not add to 100% due to rounding.

Source: 2018-19 Commonwealth Budget Paper No. 3 and Queensland Treasury estimates.

 

4 

This figure differs to Chapter 4 Australian Government payments estimates, owing to the exclusion of direct Australian Government payments to Queensland departments for Commonwealth own purpose expenditure.

 

 

96


Budget Strategy and Outlook 2018-19

 

 

7.4

GST revenue payment

GST revenue accounts for all general revenue assistance payments Queensland receives. In 2018-19, Queensland expects to receive $14.794 billion of GST revenue, $415.2 million or 2.7% less than the amount received in 2017-18 (see Chart 7.3).

 

Chart 7.3

Estimated GST payments to Queensland, 2013-14 to 2018-191

 

LOGO

Note

 

1.

Figures include the balancing adjustments which account for differences between the GST paid to states and the final GST pool size and population outcomes in the prior year.

Sources: 2018-19 Commonwealth Budget Paper No. 3 and Queensland Treasury estimates.

The decrease in GST revenue in 2018-19 reflects the CGC’s recommendation that Queensland receive a lesser share of GST compared to 2017-18. This is expressed as a relativity; the measure of a state’s fiscal capacity compared to other states, after considerations are made for its ability to raise revenue and provide services. A state with a lower relativity is considered to have a higher fiscal capacity and requires a lower share of the GST. In 2018-19, the Australian Government accepted the CGC’s recommended relativity for Queensland of 1.09584, down from 1.18769 in 2017-18.

 

 

97


Budget Strategy and Outlook 2018-19

 

 

The CGC has recommended a decrease to Queensland’s share of GST for 2018-19 due to the following:

 

 

Queensland’s population growth over the assessment years from 2014-15 to 2016-17 was lower than the national average, leading to a reduction in Queensland’s assessed need for infrastructure investment relative to the rest of Australia

 

 

Queensland required less GST funding to cover natural disaster expenses compared to years following the major flood and cyclone events between 2011 and 2014

 

 

strong commodity prices increased Queensland’s mining revenue which in turn improved the state’s ability to meet its own expenditures

 

 

Queensland received more than its population share of Commonwealth payments which increased its capacity to provide services.

Queensland’s GST revenue is also adversely affected by the Australian Government excluding some payments from the GST distribution calculations. These have favoured other states in recent years, for example, funding for the Perth Freight Link paid to Western Australia and payments made to states under the Asset Recycling Initiative. The adverse effect of such payments on Queensland’s GST share last several years before they are no longer relevant to the calculation of the State’s GST share.

The CGC Report on GST Revenue Sharing Relativities (2018 Update) provides detail on the factors that determine Queensland’s GST share. It also provides information on Queensland’s share of GST compared to other states and the reasons underpinning these differences. Table 7.1 shows the relativities and resulting GST distributions for each state and territory for 2018-19.

 

Table 7.1

Recommended relativities and estimated GST shares, 2018-19

 

     NSW      Vic.      Qld      WA      SA      Tas.      ACT      NT  

CGC recommended relativity

     0.85517        0.98670        1.09584        0.47287        1.47727        1.76706        1.18070        4.25816  

GST Share ($ million)

     18,442        17,261        14,794        3,315        6,887        2,488        1,328        2,805  

GST per capita ($)

     2,290        2,642        2,934        1,266        3,956        4,733        3,161        11,405  

Sources: 2018-19 Commonwealth Budget Paper No. 3, Commonwealth Grants Commission Report on GST Revenue Sharing Relativities – 2018 Update.

Currently the CGC is reviewing its method for determining the distribution of GST among the states. Through the 2020 Methodology Review, Queensland aims to ensure the assessment accurately reflects the challenges of delivering services to a large and decentralised state and that the State receives its fair share of GST revenue

The final report for the 2020 Methodology Review will be provided to the Commonwealth and states by 28 February 2020.

 

 

98


Budget Strategy and Outlook 2018-19

 

 

7.5

Payments to Queensland for specific purposes

Payments for specific purposes comprise funding for:

 

 

National Health Reform

 

 

Quality Schools

 

 

National Housing and Homelessness

 

 

National Specific Purpose Payments (SPPs)

 

 

National Partnership (NP) payments.

Queensland is expected to receive $11.982 billion in payments for specific purposes in 2018-19. This is $107.2 million lower than 2017-18 and is mainly due to the cessation of the National Partnership on Remote Housing in 2017-18.

 

Table 7.2

Estimated Payments to Queensland for Specific Purposes1

 

     2016-17
Actual
$ million
     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
 

National Specific Purpose Payments

     907        925        670  

Skills and workforce development

     296        299        304  

Disability services

     341        353        366  

Affordable housing2

     269        273        —    

National Health Reform funding

     3,851        4,595        4,557  

Quality Schools funding

     3,874        4,157        4,408  

National Housing and Homelessness funding2

     —          —          314  

National Partnership Payments (incl. NDRRA)

     3,228        2,412        2,034  

Total payments for specific purposes

     11,860        12,089        11,982  

Notes:

 

1.

Numbers may not add due to rounding.

2.

From 2018-19, funding under the National Affordable Housing SPP and the National Partnership Agreement on Homelessness is combined under the National Housing and Homelessness Agreement.

Sources: 2018-19 Commonwealth Budget Paper No. 3 and Queensland Treasury estimates.

In 2018-19, National Health Reform funding accounts for 38% and Quality Schools funding accounts for 36.8% of the total payments for specific purposes respectively. The estimated decrease in National Health Reform funding from 2017-18 to 2018-19 is due to funding for services provided in previous years being recognised in 2017-18. Queensland projections of National Health Reform Funding differ from the projections contained in the 2018-19 Commonwealth Budget. For 2018-19, Commonwealth projections assume higher activity growth than is projected in service agreements between the Queensland Department of Health and Hospital and Health Services. Actual National Health Reform payments may vary from estimates based on actual public hospital activity delivered each year.

 

 

99


Budget Strategy and Outlook 2018-19

 

 

From 1 July 2018, the new National Housing and Homelessness Agreement (NHHA) will commence. The NHHA combines funding under the National Affordable Housing SPP and continues the homelessness funding under the National Partnership Agreement on Homelessness, which expires on 30 June 2018.

National SPPs, which encompass 5.6% of the total payments for specific purposes, are expected to decrease by 27.6% to $669.5 million in 2018-19 (as shown in Table 7.2). The reduction is due to funding for the National Affordable Housing SPP being merged with homelessness funding, and reported as part of the new NHHA from 2018-19.

NP payments (including NDRRA), which account for 17% of the total payments for specific purposes, are expected to decrease by 15.7% to $2.034 billion in 2018-19 compared to the previous year. This is mainly due to the cessation of the National Partnership on Remote Housing. A significant proportion of these payments is allocated for infrastructure, community services, NDRRA and education (refer to Chart 7.4).

 

Chart 7.4

National Partnership Payments by sector, 2018-191

 

LOGO

Note:

 

1.

Excludes Australian Government direct funding to local government.

Sources: 2018-19 Commonwealth Budget Paper No. 3 and Queensland Treasury estimates.

 

 

100


Budget Strategy and Outlook 2018-19

 

 

In the 2018-19 Commonwealth Budget, the Australian Government announced funding of $5.2 billion for major infrastructure projects in Queensland, with most of the funding allocated outside the forward estimates. This includes:

 

 

a further $3.3 billion for priority upgrades along the Bruce Highway, including Pine Rivers to Caloundra ($880 million) and Cooroy to Curra Section D ($800 million)

 

 

a contribution of $1 billion to M1 Pacific Motorway projects (Eight Mile Plains to Daisy Hill and Varsity Lakes to Tugun)

 

 

$390 million for the Beerburrum to Nambour rail upgrade.

The Commonwealth Budget also provides funding for a number of national infrastructure initiatives that have implications for Queensland. This includes:

 

 

$15 million allocation for the Toowoomba to Brisbane Passenger Rail Business Case under the $250 million Major Projects Business Case Fund

 

 

$1.5 billion Northern Australia strategic roads package to be shared across Queensland, the Northern Territory and Western Australia

 

 

$160 million to upgrade sections of the Outback Way, which links Laverton in Western Australia to Winton in Queensland. Funding will be shared across Queensland, the Northern Territory and Western Australia.

The Australian Government has failed to fund critical infrastructure such as Cross River Rail. Furthermore, it has applied inconsistent funding splits between the Commonwealth contribution compared to Queensland’s contribution (e.g. 80:20 or 50:50) for similar projects, and regularly budgets its contribution well after projects commence and beyond the forward estimates. For example, for the two M1 Pacific Motorway projects, the Australian Government has only committed to 15.5% of its project contribution within the forward estimates.

 

 

101


Budget Strategy and Outlook 2018-19

 

 

Box 7.2

Projections of specific purpose funding to Queensland

Across the forward estimates, total payments for specific purposes are expected to steadily increase, with average growth of around 4% between 2019-20 and 2021-22.

National Health Reform funding for Queensland is expected to increase by an average of 5.5% per annum from 2019-20. Under the Addendum to the National Health Reform Agreement, the Australian Government will fund 45% of efficient growth in hospital activity subject to a national growth cap of 6.5% per annum. Current estimates are based on this methodology however, funding is subject to Queensland agreeing to the Addendum to the National Health Reform Agreement, including an agreed mechanism for finalising future National Health Reform funding determinations in a timely manner.

Growth in Quality Schools funding for Queensland is expecting to average 6.7% per annum between 2018-19 and 2021-22 as a result of enrolment growth and increased per student funding. In June 2017, legislation was passed by the Australian Government to introduce a new needs-based funding model for schools. Under the new funding model, Queensland is expecting to receive $7.856 billion for state schools and $11.687 billion (including GST) for non-government schools over the forward estimates. Funding for the 2019 to 2023 calendar years is contingent on states agreeing to national and bilateral agreements with the Australian Government by the end of 2018.

Queensland is currently negotiating the bilateral agreement for the new National Housing and Homelessness Agreement (NHHA). Funding is due to commence in 2018-19, and combines funding for the National Affordable Housing SPP with homelessness funding. NHHA funding is expected to be relatively stable across the forward estimates.

Funding for National SPPs is expected to decrease from 2019-20 as the NDIS is fully implemented from the same year, which will redirect the National Disability SPP funding to the NDIS. Funding for the National Skills and Workforce Development SPP is expected to be relatively stable across the forward estimates.

 

 

102


Budget Strategy and Outlook 2018-19

 

 

7.5.1

Expiring agreements

The original intent of the Intergovernmental Agreement on Federal Financial Relations was to limit the number of NPs, allowing for funding to flow to states for efficient service delivery and reduce the reporting burden. Over time, the number of time-limited and low-value NPs has increased, reducing budget certainty and raising community expectations for ongoing services.

When agreements expire, states are left with limited opportunities to deal with the expiring NP as the final decision on continued funding is made through the Australian Government’s budget process. The expiry of a number of large NPs over the last few years has brought the risks posed by fixed-term funding arrangements into sharp focus. States have had limited capacity to influence the continuation of expiring agreements and often there is little warning on whether funding will be continued. An early indication as to the continuation, lapse or other treatment of funding under expiring agreements is necessary to enable states to undertake effective service delivery and budgetary planning.

There are 14 agreements due to expire in 2017-18 or 2018-19. Funding will expire in 2017-18 for eight agreements, worth approximately $212 million in 2017-18. There are six agreements where funding expires in 2018-19, worth approximately $126 million in 2017-18.

The 2018-19 Commonwealth Budget provided no advice on renewal and/or funding for the National Partnership on Remote Housing following its expiry in 2017-18. Funding under this agreement improves housing outcomes by providing for new housing, housing refurbishments and housing-related infrastructure in Indigenous communities.

Further, short-term funding was announced for the National Partnership on Universal Access to Early Childhood Education until December 2019. This will be the sixth short-term extension for this agreement. Alongside this, no further funding to states was announced for the National Partnership on the National Quality Agenda for Early Childhood Education and Care following its expiry on 31 December 2018. The Commonwealth has committed to fund the Australian Children’s Education and Care Quality Authority (ACECQA) until 30 June 2020 to administer the National Quality Framework for Early Childhood Education and Care.

When the Australian Government decides to cease funding for expiring agreements, this presents a significant ongoing fiscal risk for states, with impacts on the quality and continuity of much needed services delivered to some of the most vulnerable members of the community.

 

 

103


Budget Strategy and Outlook 2018-19

 

 

7.6

State-local government financial relations

In 2018-19, the Queensland Government will provide a total of $1.667 billion in grants to local governments. This includes financial assistance grants paid by the Australian Government through the State to local governments.

The Government is providing funding of $3.2 million over four years to undertake implementation planning to improve and simplify the administration of grants to local government.

The Government is providing funding of $1.3 million in 2018-19 to develop a new grants management system. This is to progress recommendations from the Review of Grants to Local Government: Current and Future State Assessments and is an important initiative to make the interaction of Queensland Government and local governments more efficient and more effective in serving the people of Queensland.

 

Table 7.3

Grants to local governments in Queensland1,2

 

     2017-18
Est. Act.
$ million
     2018-19
Budget
$ million
 

Aboriginal and Torres Strait Islander Partnerships

     3        7  

Environment and Science

     38        61  

Child Safety, Youth and Women

     1        2  

Communities, Disability Services and Seniors

     63        60  

Education

     2        2  

Natural Resources, Mines and Energy

     33        —    

Housing and Public Works

     56        81  

Innovation, Tourism Industry Development and the Commonwealth Games

     31        2  

Local Government, Racing and Multicultural Affairs3

     865        559  

Premier and Cabinet

     13        1  

Queensland Ambulance Service

     1        —    

Queensland Fire and Emergency Services

     2        2  

State Development, Manufacturing, Infrastructure and Planning

     382        544  

Queensland Treasury

     1        2  

Transport and Main Roads

     204        213  

Other4

     26        132  

Total Queensland Government grants

     1,721        1,667  

Notes:

 

1.

Includes current, capital and asset grants to local government authorities and Aboriginal and Torres Strait Islander councils. Includes Australian Government grants paid through the state to local governments.

2.

Numbers may not add due to rounding.

3.

Decline in 2018-19 reflects prepayment of Financial Assistance Grants by the Australian Government in 2017-18.

4.

Includes grants yet unallocated to government agencies and ceased entities following Machinery of Government changes.

 

 

104


Budget Strategy and Outlook 2018-19

 

 

Box 7.3

Grants to local governments

The Queensland Government allocates considerable funding in the State Budget to support local governments across the State. The Queensland Government acknowledges the shared responsibilities in serving the people of Queensland and the i