Queensland 2017 budget puts foot to the pedal

Queensland Treasurer Curtis Pitt has delivered his third budget. It continues Labor’s pre-election commitment of not increasing taxes and royalties – but with one exception on land tax. It boosts capital spending and jobs programs by re-directing general government sector debt interest savings and utilising some of the windfall in coal royalty revenue. It tips more money into the State Infrastructure Fund to breathe life into signature big ticket projects like Cross River Rail. There is a significant focus on infrastructure projects in central, north and far north Queensland

Presumably with an eye to the next State election, the capital and jobs programs are heavily weighted towards the north of the State.

The Budget speech flags an aggressive push to attract businesses to re-locate to Queensland.

The Budget papers simply repeat the principles underpinning the new royalty framework to apply to greenfield projects in the Galilee and Surat Basins and the North West Minerals Province.

The Budget also includes details of the Government’s response to the report of the North West Queensland Minerals Province Taskforce.

The credit rating agencies may express some concern at the key fiscal aggregates for 2017-18. Reflecting the coal royalty windfall from a spike in prices, there was a net operating balance (or surplus) of $2,824 million in 2016-17 but this falls to just $146 million in 2017-18. Budget revenues are estimated to fall by 1% in 2017-18, but budget spending grows by 3.9%.

General government sector debt in 2016-17 is down to $33.9 billion and in 2017-18 is virtually unchanged, at $33.7 billion. Total government debt (including government-owned corporations) is relatively stable at $72 billion. The debt to revenue ratio is expected to remain below 70% across the forward estimates, compared to 86% in 2014-15.

The Queensland economy is forecast to grow by 2.75% in 2017-18, underpinned by household consumption, public sector spending and a positive contribution from the overseas export sector. Dwelling investment is expected to fall in each of the next three years and the fall in business investment is expected to continue in 2017-18 (-7%) but stabilise in 2018-19 and grow in 2019-20. Forecast jobs growth of 1.0% sees unemployment stay at 6.25% in 2017-18.

Key budget measures

Revenue measures and aggregates

As already stated, there are no new details on the new royalty framework announced recently.

The budget papers reveal the extent of the coal royalty windfall for the State (despite the impact of TC Debbie). Coal royalties are expected to be $3,376 million in 2016-17, compared to $1,705 million in 2015-16. With the expected softening in coal prices (already in evidence) Treasury expects coal royalties to ease back to $2,750 million in 2017-18 and fall back to around $2.2/2.3 billion later in the forward estimates. Petroleum royalty revenue remains modest at an estimated $147 million in 2017-18 and still be below $300 million by 2020-21. Metals and other mineral royalties remain a solid contributor at over $400 million in 2017-18 and in each year of the forward estimates.

Reflecting the dwelling investment slowdown, transfer duty revenue is expected to fall slightly, offset by growth in other duties, gambling taxes, land tax and other tax revenues. Taxation revenues (which does not include royalties) are expected to grow by 2.7% in 2017-18.

Dividend receipts are expected to fall in 2017-18 and across the forward estimates reflecting the declining contribution from energy network businesses.

The State’s overall revenue position is helped by an extra $932 million in GST receipts.

The only new measure is on land tax where there will be a 1.5% surcharge for absentee payers (as defined in the Land Tax act) applying to land holdings with a taxable value of $350,000. This does not apply to Queensland residents. This is expected to yield an extra $20 million in 2017-18.

There is $17.7 million in the budget for an Office of State Revenue Transformation Program, principally for an ICT upgrade. It is estimated that the transformation program will deliver an extra $197 million over 5 years, getting up to an extra $58 million by 2020-21.

The rebate on payroll tax for apprentices and trainees is continued in 2017-18 at a rate of 50%, costing $12 million.

Capital works and infrastructure

The total capital program (include GOCs and capital grants) is $10,171 million in 2017-18, compared with $8,917 million in 2016-17. Some highlights in the capital program are set out below.

• the single largest capital commitment is to Cross River Rail. The earlier $800 million allocation has been topped up by nearly $2 billion over three years, although that funding does not flow in earnest until 2019-20, and still leaving a substantial shortfall to be made up by a combination of Federal funding and private sector contributions including via ‘value capture’ along the route
• a $1.8 billion 10 year social and affordable housing strategy involving 4,522 new social homes and 1,034 affordable homes. The strategy includes using underutilised government land and new budget funding to leverage new private and community sector investment in affordable housing as part of private housing developments, via an “inclusionary” requirement for new dwellings on state land of 5-25% for social and affordable housing
• funding for the Powering North Queensland Plan, including: a $100m equity injection to Sunwater and reinvestment of dividends for improvement works on the Burdekin Falls Dam which will support a new hydro power plant supported by $100 million investment by government; and also $150 million for strategic transmission infrastructure to support a clean energy hub in north and north west Queensland. For more details view our previous article ‘Queensland Government announces next phase of its renewable energy strategy’
• a $500 million Building Future Schools Fund to build new schools and secure land in Queensland’s fastest growing regions
• $225 million over four years for Townsville water security
• $200 million for expansion of the Capricorn Correctional Centre near Rockhampton
• $176 million in 2018-19 and 2019-20 for extension of the Cairns Convention Centre
• $75 million towards the cost of the Townsville Port Channel Capacity Upgrade project
• $15 million for upgrade of Whitsunday Airport runway
• $47 million for a counter-terrorism facility at Wacol, and
• $120 million over four years for community (including water) infrastructure in indigenous communities.

Other budget expenditure

• $771 million (paid out of the 2016-17 budget) to pay for the costs of the Solar Bonus Scheme over the next three years, so that Scheme costs are not reflected in power prices
  a $200 million enhancement in 2017-18 and 2018-19 of the Works for Queensland program, funding job generating projects in local government areas outside of SEQ experiencing high unemployment
• an extra $200 million for child protection over the next four years
  an additional $130 million over the next two years for the Jobs and Regional Growth Fund to facilitate private sector and community job generating projects through grants and relief from State charges
• $85.5 million over 5 years for the Great Barrier Reef Water Quality program
• $39 million for a North West Minerals Province package, including $20 million over 4 years for a Strategic Resource Exploration Program, starting with an extra $3.5 million in 2017-18
  $10 million in 2017-18 to implement the Powering Queensland Plan, including $8.4 million for the Energy Security Taskforce and $1.6 million to implement the recommendations of the Renewable Energy Expert Panel
• $2.5 million to establish the proposed Clean Energy Company generator, and
• an extra $12 million for the Department of Environment and Heritage Protection’s regulatory and compliance work.

What the budget means for business

At the briefing for stakeholders prior to delivery of the Budget Speech, the Premier described it as a “Budget for Battlers and Builders”. Business will see from this budget and in the next few years some long-awaited action on the infrastructure and capital works front. In his first two budgets Treasurer Curtis Pitt had very little room to move on job-creating infrastructure and capital spending. Courtesy of the debt interest savings from the re-direction of funds to the reduction of general government sector debt, together with stronger coal prices and a better share of GST, the Treasurer has some room to move, and happily for his Government, just before a State election.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.