Responsible budget management – fiscal overview
The Queensland Government continues to leverage Queensland’s recent strong economic performance to support fiscal sustainability. This will be used to fund the services and infrastructure needed to create more, good, secure jobs in traditional and emerging industries, and to maintain a strong and diverse economy into the future.
Queensland’s economic performance has translated into higher-than-expected revenue performance. This primarily reflects unprecedented high commodity prices, in particular coal prices, as well as the state’s strong labour market conditions.
General Government Sector revenue is estimated to total $87.623 billion in 2022–23, up $13.438 billion compared with 2021–22. This is $13.737 billion higher than estimated in the 2022–23 Queensland Budget, with this upward revision largely driven by:
- $10.462 billion increase in royalties, reflecting the extraordinary strength in coal and oil prices across 2022 and early 2023
- $1.721 billion increase in tax revenue, reflecting the strength of the state’s domestic economy, including the state’s jobs growth and labour market performance.
The government is mindful that this revenue uplift is only temporary and revenues will moderate as commodity prices normalise over the forward estimates.
Careful management of the recent temporary uplift in revenue performance and disciplined control of spending supports positive progress towards fiscal recovery, a lower reliance on borrowings, and creates capacity for additional public infrastructure investment.
A strong net operating surplus of more than $12 billion is expected for 2022–23. A deficit is expected in 2023–24, largely attributable to the government’s $1.6 billion cost-of-living package, before a return to surplus across 2024–25 to 2026–27.
Responsible budget management has provided capacity to implement an expanded capital program across the forward estimates to develop productive capacity, sustain jobs, and support service delivery.
Forecast borrowings are lower in the near term. General Government Sector borrowing in 2023–24 will be $8.745 billion lower compared to the 2022–23 Budget and remain $2.158 billion lower by 30 June 2026 compared to the 2022–23 Budget estimate.
The 2023–24 Budget achieves the right balance. It responds to immediate challenges and issues for Queenslanders such as cost-of-living pressures, strengthening our health system, investing in more social and affordable housing, and delivering services for safe communities.
The government is also taking a long view with its significant program of public infrastructure investment that will deliver an expansion to the health system, decarbonise the state’s energy system, improve water security and prepare for the Brisbane 2032 Olympic and Paralympic Games.
Global and national economic outlook
Increased uncertainty and volatility
After rebounding strongly across 2021 and 2022, the global economy faces increased uncertainty and volatility.
An expected cyclical economic downturn in 2023 has been triggered by aggressive global interest rate increases by central banks (Chart 1) in response to the challenges posed by high inflation.
The success in taming inflation globally has so far been mixed across major economies, with key drivers of inflation spreading over time from high energy costs and supply disruptions, to include higher costs of services.
Beyond 2024, the International Monetary Fund projects the global economy to grow by just over 3 per cent per annum, the lowest medium-term forecast in decades.
Similar to the global economy, national economic growth is expected to slow in coming years, with the Reserve Bank of Australia forecasting growth of 1¾ per cent in 2023 and 1½ per cent in 2024, weighed down by slowing growth in consumption, public spending and exports.
The ultimate impact of higher interest rates and inflation, particularly on household spending, remains a key driver of the slowdown in growth nationally. However, inflation is widely forecast to have peaked in 2022 and to moderate substantially over the next couple of years, with domestic interest rates generally considered likely to be at, or near, their peak for this cycle.
Queensland’s economic outlook
Following strong growth of 4.4 per cent in 2021–22, the Queensland economy is forecast to grow by a further 2 per cent in 2022–23, and strengthen to 3 per cent growth in both 2023–24 and 2024–25 (Chart 2).
Higher interest rates continue to filter through to borrowers, with consumption growth expected to slow materially over the coming year as household budgets are impacted.
The economic growth profile also reflects temporary domestic and international supply constraints, which have negatively impacted private investment, especially housing construction, and the overseas trade sector in 2022–23. These supply constraints are expected to unwind over time.
In particular, in the dwellings sector, capacity constraints continue to limit output growth and industry completion times have drawn out. However, the solid pipeline of committed residential construction work and easing supply constraints should support a boost in dwelling investment in 2023–24.
The nominal value of Queensland’s exports is expected to grow to a record of almost $140 billion in 2022–23, largely reflecting the surge in the value of coal exports as the state’s coal producers benefit from exceptionally high coal prices flowing through to their revenues and profits. However, commodity prices are forecast to normalise as the temporary factors driving the recent unprecedented coal prices and global supply issues abate.
In real terms, an unwinding of supply constraints on goods exports, slowing goods imports and an ongoing rebound in tourism and education exports is forecast to result in a one percentage point contribution from the overseas trade sector in 2023–24, before the overseas trade sector largely returns to balance and makes a neutral contribution to growth in 2024–25 as services export growth moderates.
Queensland’s labour market has been exceptionally strong, with the unemployment rate near decade lows, the job vacancy rate near its historic high and the employment-to-population ratio around its highest level in more than a decade.
Following the strongest jobs growth in 17 years in 2021–22 (at 5.1 per cent), Queensland’s employment growth is expected to remain strong at 3¼ per cent in 2022–23, before easing to one per cent in 2023–24 as growth in domestic demand moderates.
The state’s unemployment rate, expected to average a remarkably low 3¾ per cent in 2022–23, is forecast to edge slightly higher but stay low by historical standards, to 4¼ per cent in 2023–24 and 4½ per cent in 2024–25.
Queensland’s population growth is forecast to strengthen to 2 per cent in 2022–23, reflecting a pickup in overseas migration. However, with interstate migration forecast to stabilise at pre-pandemic levels while net overseas migration remains at elevated levels, Queensland’s population growth is forecast to ease to 1½ per cent by 2024–25.
Challenges and opportunities
Risks to the economic outlook, including nationally and globally, remain skewed to the downside.
Inflation and the impact of monetary policy responses among major central banks, including in Australia, remain the biggest risks to the outlook.
The potential escalation of Russia’s military actions against Ukraine is also an ongoing risk to the outlook.