A New Wind

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By Michael Knox

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Chief Economist and Director of Strategy

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06 June 2014, 8:25 AM

At first sight the numbers in the Queensland Budget appear to show only modest improvement. A closer look though shows a quite remarkable change in the structure of public management. Budgets are normally creatures of the macro economy. The big numbers on revenue and on spending exist within a world of unchanging management practice.

What is striking about this Budget is how it reveals a dramatic change in management practice in Queensland public service provision. That dramatic change has been made within a relatively short time period.

Macro Management

The big numbers don't show this straight off. The fiscal deficit in 2012/13 of $7.74 billion is followed by a fiscal deficit in 2013/14 of $6.083 billion. This though is followed by a much smaller deficit in the year ahead of $2.271 billion. 

It's in 2015/16 when we return to a fiscal surplus of $0.862 billion. This is not a big surplus. The Queensland Treasurer, in at least one of his briefings, noted that a major disaster like a cyclone would almost wipe this surplus right out. However, it is remarkable that it is a surplus at all.

Moving from large deficits to any kind of surplus within no more than five years is a real achievement. Staying with surpluses will be an even greater achievement. The government argues that in order to keep those surpluses coming, it will need to reduce the debt load. To do this, privatizations and leases of public assets will be necessary. But more on that later.

Economic Outlook

The Queensland economy grew by 3.6% in 2012/13. This was a good bit faster than the Australian economy. In 2013/14 the Budget Paper suggests that growth will slow slightly to 3%. The same number (3%) is expected in 2014/15. Growth then accelerates because of Liquefied Natural Gas (LNG) exports to 6% in 2015/16, then eases to 4% in 2016/17 and 3.5% in 2017/18.

That very high growth number of 6% in 2015/16 comes from a surge in exports (thanks to LNG) to 22.5%.

Assets for Sale or Lease

The total amount of gross debt in 2014/15 is A$79.956 billion. Okay, lets say $80 billion for short. The Treasurer suggests a program of assets sales and leases which will generate proceeds of $33.6 billion. Of this, $8.6 billion will be spent on infrastructure and $25 billion will be used to reduce debt. 

A number of major items are under consideration for sale or lease:

• Gladstone Ports Corporation Limited, where the government suggest the sale of a long term lease;
• The Port of Townsville Limited, together with the Mount Isa Rail line, where the government suggests a long term lease;
• Sunwater Industrial Pipelines, where the government suggests a sale;
• CS Energy Limited (another electricity asset), where the government suggests a sale;
• Non-core assets of generation and distribution services such as coal mine and retail electricity functions, where the government also suggests a sale.

In addition, the government will allow private sector industry participation in the electricity transmission Powerlink, and the electricity distributors Energex and Ergon. In these cases the government suggests that it will issue hybrid securities to private sector investors. Hybrid securities are debt securities which also have some exposure to the upside from increased valuations in those assets as they occur.

Infrastructure Program

Some $8.6 billion of the money raised from sales and leases will be spent over a six year period to fund major infrastructure projects. These projects include:

• Rural and Regional Roads Fund - $1.5 billion
• South East Queensland Roads Fund - $1.5 billion
• Public Transport Rail Infrastructure Fund - $1 billion
• Bus and Train Project - $1 billion
• Future Schools Fund - $1 billion
• Rural and Regional Economic Development Fund - $700 million
• Local Government Co-Investment Fund - $500 million
• Future Fund (Natural Disasters) - $500 million
• Entrepreneurial and Innovation Fund - $500 million
• Community Hospitals Fund - $300 million
• Cultural Infrastructure Fund - $100 million

Business Management

To me, the most impressive part of this budget is the changes in service delivery in key sectors since the government has been in office. 

Many case studies have shown that when you move an enterprise from the public sector to the private sector, you reduce the costs of operation by around 20%. I have always said that this shows that public servants spend at least 20% of their time making their Ministers look good and only 80% of the time actually providing services to the public.

It appears that the previous government was spending a lot more than 20% of expenditure making its Ministers look good. This government said that it has reduced the growth of outlays from 8.9% per annum for the 10 years until it gained office to 2.2% per annum is 2013/14. Yet at the same time, amazing improvements in service delivery have occurred.

The Budget Paper shows us that there has been a dramatic reduction in hospital waiting lists. The number of category 1 patients waiting more than 30 days for surgery has been cut by 83% over the past two years. The number of category 2 patients waiting more than 90 days for surgery has been cut by 69% in the same period. There are 57% fewer patients waiting longer than the recommended waiting time for elected surgery compared with six months ago.

The number of long wait dental patients has been reduced by 98.5% in the last 14 months. The average time between ambulance dispatch and next job availability has been reduced by 18.75% since March 2012. The ambulance response time has been reduced by 66 seconds over the same period.

The ability to improve services yet reduce spending growth suggests that the previous government used a lot of its employees to deliver political services rather than public services. The fact that you can improve services with reduced spending is little short of amazing to this economist. It shows a much higher level of business management.

Conclusion

It should be noted that Campbell Newman came to office with far more experience than a first term premier normally has. He had previously been running Brisbane City for some seven years. Brisbane City has a budget comparable in size to Tasmania or the ACT.

He had obviously built up a high degree of administrative capacity which gave him a head start in dealing with problems of State administration. The business of running the State of Queensland is now benefiting from that experience.

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