I think there are quite a few self-inflicted political problems for Queensland Labor in the presentation of the budget handed down on Tuesday afternoon. But Anna Bligh and Andrew Fraser certainly aren’t helped by the ubiquity of the ‘debt is evil’ theme. Witness George Megalogenis’ front page column in The Australian yesterday:
QUEENSLAND has replaced the usual suspect of NSW as the nation’s sickest state and threatens to drag Australia into a prolonged recession.
Queensland has by far the worst budget position of all the states, and its citizens face the sharpest fall in living standards as unemployment is forecast to almost double in the next two years, from 4.25per cent to 7.25 per cent.
In fact the budget projections show Queensland below the national average in unemployment, and contracting less than the national economy. It is certainly legitimate to question the Bligh government’s economic strategy – and also to question why more wasn’t done in the Beattie years to build up infrastructure and public services. But Megalogenis’ argument conflates the state’s fiscal position with the health of Queensland’s economy in a false and unhelpful way… though it’s probably less unhelpful to Bligh than the “85 billion on the credit card” front page in the Courier-Mail yesterday. Perhaps she can take some comfort from the fact that the C-M’s overt bias towards the LNP had no discernible impact on the March election result.
New LNP leader John-Paul Langbroek delivers his reply in Parliament today. No doubt it will be all about debt and deficits. The ALP is more interested in beating up stories about a leadership challenge, part of a move to wedge and split the LNP on the privatisation bills. It’s a mystery to me why Labor Ministers would be chortling about the prospect of LNP (probably former National) members voting against a firesale of state assets.
Ps: For those interested, the Queensland budget papers can be found here.
The resource states are going to be hit hard, really hard, by sharply lower commodities contract prices and the stronger Aussie dollar.
During the October-March period the resources sector was cushioned by a very weak AUD, continued high contract prices, and volumes holding up. That’s all history now. Look forward to a big national pay cut.
Surely Mark, you are not sggesting that the states finances and budget has no effect on or nothing to do with the economy. Because introducing a petrol tax and selling monopolized assets will cost jobs and the extra interest we will be paying because of the downgrade of the credit rating will ultimately mean less services. And obviously job losses and reductions in services affects the economy in a bad way.
Jamo, Mark’s point is quite simple. He is not saying that the budget and the economy are not related, he is saying that it is wrong to assert that the state with the largest deterioration in the budget position has the weakest economy. A reader of Megalogenis may have been given that impression.
Mark, I haven’t done the calculation myself, but it would be interesting to compare per capita real growth rates across the states rather than the raw real growth rates, to see whether it makes a difference to ranks of performance. As you know, Queensland’s population growth is considerably higher than some of the other states, which means that at least some (and perhaps all, though again, I haven’t checked) of the gap in performance would be erased. When population growth rates differ considerably across regions/countries being compared, per capita growth is a superior measure of welfare to the raw real growth figures.
Mark quite correctly identifies George’s main gripe as the level of debt, in particular the turn from surplus to deficit. Although you wouldn’t know it from the main article, his position is a little more nuanced than ‘debt is evil.’ His comment [Wed 17 Jun 09 (07:14am)] on his blog clarifies this…
I think that George’s main thesis for the recession is that NSW and QLD have been exposed as having bloated government budgets while VIC is much healthier thanks to tough reforms carried out by Jeff Kennett.
I’m no expert, and certainly Victoria isn’t perfect, but it clearly is in a stronger position than NSW and QLD. Perhaps George is also venting some anger at the state of the Federal books; seeing parallels in the reliance on boom windfalls instead of maintaining structurally sound budgets.
My budget sure is my economy.
Except most of the accumulation in debt IS to pay for infrastructure, not to pay higher wages. Sure the QLD budget position has deteriorated significantly, but that is largely related to the unwinding of the commodity price boom. The credit rating agencies don’t seem particularly worried (despite the small downgrade) and have actually suggested that they are likely to upgrade in the future. The Victorian government budget must be the least exposed of all the states to the mining cycle, and the industrial composition of Victoria puts it in a relatively good position to enjoy the fruits of the fiscal and monetary stimulus in train. In the QLD case, you also have to take into account the assets (financial and non-financial) the government holds – which are large. The state is far from insolvent.
“I think that George’s main thesis for the recession is that NSW and QLD have been exposed as having bloated government budgets while VIC is much healthier thanks to tough reforms carried out by Jeff Kennett.”
He gives Brack’s some credit as well if you read his comments. Thing is though, George is pushing the privatisation is “reform” barrow. Just as you seem to be thewetmale. Not so smart for many reasons, besides the firesale factor. And the wonder of Jeff is largely overated. Mostly by those who did not live in Victoria when The Pain ruled.
The main points of the Opposition Leader’s response is here:
http://www.abc.net.au/news/stories/2009/06/18/2601798.htm?site=news
Perhaps Langbroek might have been better off if he took on board what Paul Krugman had to say instead of the usual Liberal Party patter about the evil of debt and deficits. The bit that Langbroek seems to miss is this.
[Well then, what about all that government borrowing? All it’s doing is offsetting a plunge in private borrowing — total borrowing is down, not up. Indeed, if the government weren’t running a big deficit right now, the economy would probably be well on its way to a full-fledged depression.]
http://www.nytimes.com/2009/06/15/opinion/15krugman.html?_r=1
There was an interesting point in the last speech from the Governor of the Reserve Bank that Langbroek might care to consider before he gets too excited about a “decade of debt and deficit”.
[One might, of course, ask whether the striking speed and simultaneity of the downturn could be seen again in the upswing. The reason people think such an outcome is unlikely is that the loss of wealth during 2008 and the need for private-sector balance sheets to be deleveraged are thought likely to constrain both household demand and the ability of the banking sector to expand credit, for some time.
This is a reasonable reading of the history of most financial crises, and underpins the consensus forecast that global growth, when it resumes, will be pretty modest initially.
Yet the speed and size of the responses to the downturn by policy-makers around the world is just as unprecedented as the speed and size of the downturn itself. If there were an upside surprise on global growth, it would most likely be because the collective effects of all those policy responses turned out to be bigger than expected, perhaps because those expectations were formed by looking at a history where such simultaneous responses rarely occurred.]
http://www.rba.gov.au/Speeches/2009/sp_gov_040609.html
Mark, don’t you think George Meg should (scratches nose) declare an interest when writing about the current Bligh Govt?
Tom R, if you’re referring to the fact that he used to be married to one of the Ministers, I don’t know, to be honest what the journalistic protocols would be.
LO -
That’s right, and I think that’s the most obvious impression a reader would be left with. I suspect the misleading (and actually false given the way they would probably be read) statements are derived from a comparison with the projections in the NSW budget. That should be made plain. To be honest, I very much doubt the projections in NSW have much relationship with what is likely to actually occur. But your point about growth per capita is a good one, and it would be interesting to know how the various states line up on that basis.
Yeah, good point… I can’t think of a precedent, and when you’ve got Andrew Fraser writing in The Oz about a Cabinet that includes Andrew Fraser, the game rules are not wholly clear.
US journalists tend to bend over backwards to say “Full disclosure: I used to be date X 30 years ago”, etc, but then there’s the other party’s privacy to consider. I suppose it depends whether the journo is writing about individuals or the entire Cabinet (Bjelke-Petersen v Burns notwithstanding – it was a bad judgment).
Finally found why they are so worried about unemployment rising rapidly from now on. It’s explained on p26 of Budget paper 2.
[With economic output forecast to decline in 2009-10 and stage a mild upturn in 2010-11, employment is forecast to fall ¾% and recover 1¼% in these respective years. As a result, population growth is forecast to exceed jobs growth, causing the
year-average unemployment rate to rise to 6½% in 2009-10 and peak at 7¼% in 2010-11, the highest year-average rate since 2001-02. However, with jobs growth
projected to strengthen to 2½% and 2¾% over 2011-12 and 2012-13 and to exceed
population growth, the unemployment rate is expected to fall over this period.]
Now that we have the lefts green prescriptive debt to deliver their desired, boringly flat social outcomes who will take responsibility for the results when this experiment fails to please? The masters or their servants public!
I tell you for all the QLD hansard nerds out there check out the newly elected MP for Beaudesert’s reply to this budget. As a parliamentary employee in the place I hear one dull speech after another. It is rare when you hear vision. And you do hear it.
A Galaxy poll has been rushed out by NewsLtd to prove they were right or something.
[Labor's primary vote has nosedived from 42.2 per cent at the election to 36 per cent, while the LNP's support has jumped from 41.6 per cent in March to 47 per cent now.
Based on past preference flows, the LNP would win relatively comfortably if an election was held this week with 55 per cent of the two-party preferred vote compared with Labor's 45 per cent.]
http://www.news.com.au/couriermail/story/0,23739,25660968-952,00.html
The other Steve.
I actually watched that circus performance from the Member for Beaudesert and thought it was funny that after his lecture about regionalisation of Beaudesert, the next speaker was from a real regional area, Mt Isa. It was such an impressive speech that I turned the computer off and went to sleep. No need for sleeping pills when young twerps full of their own importance, like McLindon, can send one to sleep so quickly.