Queensland budget 2016: How Pitt plans to dig state out of slump

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Queensland Treasurer Curtis Pitt has denied his second budget is based on a "hope and prayer", despite not leaving any room to move if something goes wrong, as the government relies on its new policies and ventures paying off to dig the state out of its economic slump.

The continued downturn in the world commodity price and a drop in taxation receipts has meant Treasury had nearly $5 billion less than it thought it could count on this time last year, with no way to immediately make up the funds.

The Palaszczuk government staked its political future on its plan to diversify the state's economy, pushing into the innovation arena in the hope it would pay future dividends, while also hoping capital spend on infrastructure projects, particularly in the regions, would be enough to kickstart a recovery in the interim.

But Mr Pitt said it was part of an established strategy.

"This is not a hope and a prayer, if I heard you correctly," he said.

"This is a plan, an economic plan that we are taking from this budget, which deals with the difficult situation we are experiencing from the revenue front, particularly as it relates to royalties, but importantly not only looking at the challenges, but looking at the opportunities.

"The opportunities are there in terms of our future agenda, in terms of our investment attraction and the results that will come from our significant capital works program, it is going to be $44 billion over the forward estimates and we have included in that a new $2 billion fund under the state infrastructure fund, which Building Queensland will be feeding projects into."

In the new budget tradition of spreading problems out, Mr Pitt has based his budget on the forwards - setting fiscal principles he can't meet now, but plans to meet - if averaged out.

After taking $4.1 billion in general government debt and transferring it onto the government-owned corporations books last year, Mr Pitt has again leaned on the GOCs, taking any cash surpluses - a round $750 million -  and placing them in general government accounts, on top of the dividends the government is also commandeering. In terms of the cash surpluses, the money is there if the GOCs - the electricity and water network businesses - need it, but in the meantime, it offsets general government debt, while doing nothing for the overall debt, which is still forecast to hit $78 billion over the forwards.  

It also means the GOCs interest repayments will increase - Mr Pitt was unable to give a figure for the interest repayments but he said they could still meet their responsibilities. 

"In the same way that the former government decided to change the metrics and talk about fiscal balances instead of net operating balances, they also started this conversation around gross debt, or non-financial public sector debt which had not been used as a measure in Queensland.  And the reason why is because interest repayments are being made that actually affect taxpayers, on the general government sector," Mr Pitt said.

Our room to move is based on our approach to growing the economy - as we have seen, we will be leading all the states.

Qld Treasurer Curtis Pitt

"That is something we have reduced, since coming to office, by more than $10 billion.  We had a commitment that we would attempt to get $12 billion over 10 years paid down, off-general government sector debt.  We have achieved more than $10 billion over two years."

But while the overall debt cost has not reduced, Mr Pitt said the debt-to-revenue ratio was the "important metric" and the government was "tracking lower" under any debt measure, dropping from 91 per cent to just over 70 per cent this year. 

"By 2019-20, we expect it will be around 68 per cent," Mr Pitt said.

"That is a key metric that rating agencies will be looking at.  Any business will be looking at that metric, as opposed to what the total quantum of debt is overall."

After announcing last year that the government would explore utilising the surplus in the defined benefits scheme - a closed public servant superannuation scheme - while also taking a contribution "holiday", ie, no longer pay into the fund, Mr Pitt has decided to "repatriate" (or "raid" as the opposition refers to it) $4 billion from the fund, with half going to debt reduction and the other to infrastructure.

That's $1 billion less than the State Actuary - the body that advises the government on the health of its Treasury - said could be used.

It's the only buffer in the state budget, which has made no allowances for further drastic downturn in the global economy, outside of its estimates, or a natural disaster on the scale of Marcia or the 2011 floods.

Instead, Mr Pitt said the government was relying on economic growth and its plans to create new industries within Queensland coming to fruition, as well as the success of its jobs plan, which includes $40 million to attract new business, $100 million to boost regional unemployment, and the resulting jobs from the billions of dollars it plans on spending on much-needed regional infrastructure.

But while trend unemployment is forecast to dip below 6 per cent over the forwards, and has dropped from 6.6 per cent to 6.2 per cent since the government took office, seasonally adjusted unemployment - which relies on the time of year among other indicators, is predicted to remain around the same levels as we have seen - where it has bounced between 5.9 per cent and 6.7 per cent.

Mr Pitt says the government has created 52,000 jobs since coming to office, including 1200 full-time jobs a month.
Public service spending has increased, as full-time equivalent staff have been increased, with an additional 4100 public servants than were budgeted for in last year's budget. 

Mr Pitt said 86 per cent of the additional FTE workers have been frontline workers in education and health and have been necessary to "repair the damage" the Newman government public service cuts left.

"When it comes to looking at our future years, with full-time equivalents in the public service, we have outlined a new fiscal principle which will be adhered to in Queensland," Mr Pitt said.

"This will be looking at, on average, over the forward estimates, ensuring that we keep population growth in line ... FTE growth in line with population growth."

But while population growth is set at 1.5 per cent, public service employee numbers increased in the financial year by 2.4 per cent. 

"We can't meet it in the first year because the fiscal principle isn't applied in simply one year," Mr Pitt said.

"It is on average across the forward estimates, we will see employee FTE growth in line with the population growth. 

It is an important challenge that we have set ourselves, because we know that employee expenses are one of the most significant expenses in government.

"But what we also know is last year, and in the 16-17 year, we are still repairing the damage that was caused by Campbell Newman and Tim Nicholls when they savagely attacked the public service and government workers in Queensland.

"It wasn't just those families and individuals who lost their jobs.  We know it had a significant impact, when combined to the cuts to services and the restriction to capital in regional Queensland.

"That is one of the key reasons why regional Queensland is suffering even more, notwithstanding that we have had significant transition in the economy."

Departments have been asked to find $450 million in savings, particularly from Education.  That follows the $1.1 billion in savings from the year before, which the government calls "reprioritisation" and Mr Pitt says was all met.

But the resulting budget, which does include "record" spends in health, education and $40 billion in roads and infrastructure - although Mr Pitt is keen to point out that revenue, at 3.2 per cent, "outstrips" expenses, at 2.9 per cent, when it comes to the general government sector - has no room to move.

"Our room to move is based on our approach to growing the economy - as we have seen, we will be leading all the states," Mr Pitt said.

That metric - a prediction from Treasury - has dropped. What was 6 per cent is now 3 per cent, as outside factors continue to play havoc with Queensland's main industries.

"There are a lot hypotheticals in budgets, we have forecasts and projections," Mr Pitt said.

"So what we are talking about here is the best knowledge that we have about what will happen across the forward estimates.

"We very clearly talked about the fact that we needed to further diversify our economy, we need to ensure that we play to our strengths at the moment, which clearly, are in agriculture and tourism, and with our innovation agenda under accelerating Advance Queensland, we will need to make sure that we bring some of those businesses and additional revenue streams to fruition.  And we can do that.  We have done that before.  

"When you look at what happened with the LNG industry, that was an opportunity for a game-changer in Queensland with new innovations.  You have heard the Premier talk about just how important future arrangements could be with the US Navy and their great green fleet initiative. 

"If we are able to work those proposals up, we will see Queensland and more broadly Australia put on the world map in terms of what we are able to do in terms of bio-futures."

The key word there, and the one the opposition will seize on, is "if".  LNP leader Tim Nicholls will deliver his reply to the budget on Thursday.

Have questions about the Queensland Budget? Visit our Facebook page at 9.30am on Wednesday July 15 for a live Q&A; with our state political editor Amy Remeikis. Note: The Facebook Live Q&A; has been postponed to 12.30pm so Amy can cover a 10am press conference.