THE STRONGEST & SMARTEST CHOICE...4 The Strongest & Smartest Choice ExecutiveSummary Queensland is...

THE STRONGEST & SMARTEST CHOICE

Great state. Great opportunity.

2 The Strongest & Smartest Choice

Contents

The Strong Choices Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Queensland’sdebtanddeficitproblem . . . . . . . . . . . . . . . . . . 7 Howdidourdebtgetto$80billion? . . . . . . . . . . . . . . . . . . . . . 9 Dootherstateshavethesameproblem? . . . . . . . . . . . . . . . . 11 Whyactionisneeded–thecostofdoingnothing . . . . . . . . . 13 Actionplan:Budgetrepairtodate . . . . . . . . . . . . . . . . . . . . . . 14 Whatmustbedonenow? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Strong Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 StrongChoices–TheCampaign . . . . . . . . . . . . . . . . . . . . . . . 18Strong Choices – Increase taxes? . . . . . . . . . . . . . . . . . . . . . . . 19 StrongChoices:Significantlyincreasetaxes . . . . . . . . . . . . . 19 WhattheGovernmenthasalreadydone . . . . . . . . . . . . . . . . . 20 Impactoffurtherincreasingtaxes . . . . . . . . . . . . . . . . . . . . . . 21STRONG CHOICES – CONSULTATION REPORTStrong Choices – Reduce services? . . . . . . . . . . . . . . . . . . . . . . 23 StrongChoices:Reduceservices . . . . . . . . . . . . . . . . . . . . . . . 23 WhattheGovernmenthasalreadydone . . . . . . . . . . . . . . . . . 23 Impactofservicereductions . . . . . . . . . . . . . . . . . . . . . . . . . . 24Strong Choices – Sale or lease of assets? . . . . . . . . . . . . . . . . . 25 Optionsforassettransactions . . . . . . . . . . . . . . . . . . . . . . . . . 26 WhattheGovernmenthasalreadydone . . . . . . . . . . . . . . . . . 27 WhyGovernmentsshouldnotcontinuetoownsomeassets 28New External Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ImplicationsoftheFederalBudget . . . . . . . . . . . . . . . . . . . . . 29 TheStrongestandSmartestChoice . . . . . . . . . . . . . . . . . . . . . 30 TheresultofStrongChoices . . . . . . . . . . . . . . . . . . . . . . . . . . . 34The Strong Choices Investment Program . . . . . . . . . . . . . . . . . 35Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Contents

Queensland’s Plan for Secure Finances and a Strong Economy 3

We are here

TheStrongChoicesProcess

TheStrongChoicesProcess

February–April2014

CommunityLeaderRoundtables CommunityLeaderEngagement

From3June–15August2014

StrongChoicesfeedbackonspendingpriorities TheStrongestandSmartestChoiceDraftPlanofAction

September2014

FinalStrongChoicesPlanofAction TheStrongestandSmartestChoice

TheStrongestandSmartestChoiceisQueensland’splanforsecurefinancesandastrongeconomy

From13April–19May2014

People’sBudgetInteractiveToolStrongChoicesCommunityForumsStrongChoicesShoppingCentreInformationBoothsVirtualTownHalls CommunityEngagement

3June2014

TheStrongestandSmartestChoiceDraftPlanofAction


ExecutiveSummary

Queenslandisonthecuspofstronggrowth,withbudgetprojectionsindicatingtheeconomywillexpandby6%in2015–16.TheState’spopulationisgrowingtoo,andisforecasttoreach7millioninjustover20yearsfromnow.

Whilethesesignsareencouraging,Queensland’sfutureprosperityisbeingthreatenedbyanaccumulatedStatedebtof$80billion–theresultoftenyearsofpoorplanningandwastebypreviousgovernments.Thecostofservicingthatdebtisnow$4billionininteresteveryyear.Thatis$4billionin‘deadmoney’thatcouldbespentonbuildingmoreschools,hospitals,roadsandothervitalinfrastructuretoensurethisState’sgrowingpopulationcanenjoyabrighterfuture.

ThisGovernmentcametoofficecommittedtorepairingtheState’sfinances.Withintwodaysofbeingelected,theGovernmentappointedanIndependentQueenslandCommissionofAudittoinvestigatethescaleoftheproblemand what needed to be done .

InJune2012,theCommissiondelivereditsinterimreportontheState’sbalancesheet,identifyingthethreatposedbythedebt,ifleftunaddressed.Bythen,theGovernmenthadalreadybegunitsfirststageofBudgetrepair,focusingonreininginexpenditureandcuttingwasteinordertostabilisethe debt .

InitsInterimReport,theIndependentQueenslandCommissionofAuditsettheparametersforthesecondstageofbudgetrepairwhenitrecommendedQueenslandreduceitsdebtby$25-$30billion.ThismagnitudeofsavingswasdeemedessentialinordertobolstertheBudgetagainstbroaderstructuralchallengesfacingAustraliaandtobuildfutureprosperity.

Doing nothing is not an option.

Toachievesavingsofthisscale,theQueenslandGovernmenthasthreechoices.

Itcan;

• Significantlyincreasetaxes

• Reduceservices

• Sellorleasesomeassets

Noneoftheseoptionsareeasyorpopular.

ButtheGovernmentbelievesQueenslandersdeservetobefullyinformedabouttheState’sfinances,andthechoicesavailabletorepairitsfiscalpositionandboosteconomicprosperity.

InApril2014,theStrongChoicescampaignwaslaunchedtoensureQueenslanderscouldaccesstheinformationtheyneededtohavetheirsayaboutreducingthedebt.ThecentrepieceofthiscampaignwasAustralia’sfirstinteractive‘People’sBudget’.Ultimately,morethan255,000peoplevisitedtheStrongChoiceswebsite,andover55,000Queenslanderssubmittedtheirown‘People’sBudget’online,outliningtheirsavingandspendingpriorities.

Almost20,000peopleattendedpublicforumsorparticipatedinvirtualtownhallsheldaroundtheState.TreasurerTimNichollstravelledmorethan19,000kilometrestomeetwithQueenslanderspersonallytodiscusstheStrongChoicesoptions.

Afterthisunprecedentedpublicconsultationprocess, theGovernmenthasmadeitschoiceabouttacklingthe $80billiondebt.

ThepublicresponseclearlyshowedQueenslandersrecognisethedebtandinterestproblem,andsupportadisciplined,methodicalplantoreducethe$4billioninterestdrainingfrompubliccoffers.Overall,raisingtaxesorreducingservicesweretheleastpreferredoptionsforachievingsavingsofthemagnituderequired.

Impact of asset transactions on the State’s debt

30

40

50

60

70

80

90

Total State debt beforeasset transactions

$ bi

llion

Total State debt aftertransactions

Down$25 billion

Impact of asset transactions on the State’s interest bill

1

1.5

2

2.5

3

3.5

4

4.5

Total interest beforeasset transactions

$ bi

llion

Total interest afterasset transactions

Down$1.3 billion


Strong Choices Investment Program

Proposed Spending Initiatives

$8.6bnover 6 years

Future Fund (Natural Disasters)

Bus and Train Project

Local Government Co-Investment Fund

Public Transport Rail Infrastructure Fund

Rural and Regional Roads Fund

South East Queensland Roads Fund

Rural and Regional Economic Development Fund

Entrepreneurial and Innovation Fund

Future Schools Fund

Community Hospitals Fund

Cultural Infrastructure Fund

Aftercuttingwaste,reducingthesizeofthepublicservice,andliftingsometaxesandminingroyaltiestostabilisetheBudgetaftercomingtooffice,theGovernmentrecognisesQueenslandersareconcernedaboutservicereductionsortaxincreases.Withspendingcutsandincreasedtaxesinthe2014-15FederalBudget,ithasbecomeevenmoreimportanttoavoidfuellingcostoflivingpressuresfeltbyeverydayQueenslanders.Nowisnotthetimetoburdenpeoplewithtaxesupontaxes,ortoreduceservicesthathavealreadybeenmademoreefficient.

TheStateGovernmenthastakenthisneweconomiccontext,framedbytheFederalGovernment’sowndebtreductionefforts,intoconsideration.TheStrongestChoiceforQueenslandisalsotheSmartest:theonethatsecuresQueensland’sfuture,withoutplacinganundueburdenonQueenslandersinthepresent.

ThatiswhytheGovernmentisnowproposingaprogramofassettransactions,inwhichseveralGovernmentassetswillbetransitionedoutofStateownership.Themeansofdoingsowillvary,dependingontheasset.Mosttransactionswillinvolveeitherlong-termleasesorsales.

However,insomecases,theGovernmentwillproposeaninnovativeoptionofprivatesectorparticipation,wheretheGovernmentwillretainownershipoftheordinaryshares,withprivatesectorinvestorsfundingfuturecapitalexpenditure.

Attheircurrentbookvalue,theassettransactionsproposed couldpotentiallyreducedebtanddeliverproceedstoavalueof$33.6billion.

Three-quartersofthiswouldbeappliedtoreducetheState’sdebtby$25billionto$55billion.ThisnewdebtlevelwouldmeanQueensland’sannualinterestbillwoulddropfrom $4billionto$2.7billion.

TheremainingproceedswouldbedepositedintheStrongChoicesInvestmentProgram,asuiteofnewinfrastructureandinvestmentfundsdesignedtobuildmoreschools,hospitals,roadsandothervitalinfrastructuretoensurethisState’sgrowingpopulationcanenjoyabrighterfuture.

Afteraperiodoffurtherconsultation,inwhichQueenslanderswillbeinvitedtonominateprojectsintheircommunitiesthatmayqualifyforfundingfromtheStrongChoicesInvestmentProgram,theGovernmentwilldeliveritsfinalplanfortheStrongestandSmartestChoiceinSeptember2014.

NoneoftheseproposalswillbeimplementeduntiltheGovernmenthastakenthismethodicalanddisciplinedplan tothenextStateelection.

Not everyone will agree with all of the choices this Government has made about how to pay for things into the future. But at least Queenslanders now know we will have funding certainty into the future, so we can invest in the things we need for a growing and ageing population.

The Strongest Choice is now the Smartest Choice.


TheProblem

Businesses under consideration for sale or lease

Sector Businesses Strongest and Smartest Choice

Ports GladstonePortsCorporationLimited Longtermlease

Ports PortofTownsvilleLimited withtheMtIsaRailline

Longtermlease

Water Distribution SunWaterIndustrialPipelines Sale

Electricity Generation Assets StanwellCorporationLimited Sale

Electricity Generation Assets CSEnergyLimited Sale

Non-core Assets of the Generation and Distribution Businesses

Therearearangeofnon-corebusinessactivities,suchascoalminesandretailelectricityfunctions

Sale

Businesses under consideration for private sector investment

Sector Businesses Recommendation Explanation

Electricity transmission Powerlink Privatesectorinvestment

• State retains 100% ownership of the ordinary shares• Powerlink,EnergexandErgoneachissuehybrid

securitiestoprivatesectorinvestors• Governmentcontinuestoreceivetaxandashare

ofdividends• Existingdebtofthenetworkbusinessesisreplacedwith

privatesectordebt• Stateresponsibilityforcorporationdebtremovedfrom

theState’sbalancesheet• Privatesectortofundfuturecapitalexpansions• Introductionofprivatesectordisciplineandefficiencies

Electricity distribution EnergexLimited Privatesectorinvestment

Electricity distribution ErgonLimited Privatesectorinvestment


Queensland’sdebtanddeficitproblem

Queensland’s deficitSince2006-07,Queenslandhasspentmorethanitearned,accumulatingBudgetdeficitsof$29billionbetween2006-07and2011-12.ThepreviousGovernment’slastBudgetupdatelockedinafurther$13billionofdeficits.Nofiscalsurpluswasprojectedatthattime.

WhentheBudgetisindeficit,theGovernmentmustborrowtomakeuptheshortfallandcontinuetopayforessentialservices.Thecontinuingdeficitswereoneofthemainreasonsfortheexpectedincreaseindebtto$85billionby2014-15.

FollowingindependentadvicefromQueenslandTreasury,theQueenslandTreasuryCorporation,ratingsagenciesMoody’sandStandard&Poor’s,andtheIndependentQueenslandCommissionofAudit,theGovernmentdecideditcouldnotaffordtowaitforgoodlucktoreturntheBudgettosurplus.

Sincetakingoffice,theGovernmenthasintroducedarangeofmeasurestorepairtheBudget,whichisnowontracktoreturntosurplusin2015-16,thefirstin adecade.

ButwithQueensland’spopulationof4.6millionprojectedtoincreaseto7millioninjustover20yearsfromnow,theStateneedsmoreinfrastructureandessentialservicestoreachitsfullpotential.TheprojectedgrowthinexpensesinareassuchashealthandeducationmeanstheBudgetwillslipbackintodeficitjustthreeyearslaterunlessstrongactionistaken.

TheProblem

Chart 1: Budget Deficits 2006-07 to 2014-15

Queensland C

omm

ission of Audit Final R

eport February 20

13

- Volume 1

Queensland Commission of AuditFinal Report - February 2013Volume 1 - Executive Summary and Recommendations

“With growth, comes growing pains. Those pains need to be addressed, infrastructure needs to be built to cater for demand, services need to be delivered and a successful business environment fostered…The only thing holding us back, from the opportunity of tomorrow is the previous government’s black cloud of debt.”QLDTREASURERTIMNICHOLLSSPEECHTOCEDA,FEBRUARY2014

2006-07 2008-09 2010-11 2012-13 2014-15

-7

-8

$ bi

llion

-9

-4

-5

-6

-3

0

-1

-2

“Feedback from QTC’s recent financial market interactions indicates that market participants consider the State’s fiscal position to be unsustainable and are looking for the Government to deliver a credible strategy to address the State’s level of debt and ongoing budget deficits as a matter of priority. Prompt action to develop, implement and communicate such a strategy is essential to support QTC’s ongoing ability to access funds”INCOMINGGOVERNMENTBRIEFPREPAREDBYQUEENSLANDTREASURYCORPORATION,MARCH2012


Queensland’s debtThisfinancialyear,ourdebtwillreach$80billion,thehighestStatedebtinAustralia.

Queenslandispayingalmost$4billionayearininterestpaymentsalone–$450,000anhourof‘deadmoney’–andthisisprojectedtoriseto$4.3billionby2016-17or$486,000perhour.ThisinterestbillrobsallQueenslandersofmoneythatcouldotherwisebeinvestedinnewinfrastructurethatwillhelpdriveeconomicgrowthorcaterfortheneedsofourgrowingpopulation.

Forexample,$4billioncouldpayfor25newprimaryschools,almost900kmofhighwayandtheredevelopmentandexpansionofa300-bedregionalhospital.

Ifnothingisdone,theBudgetwillslidequicklybackintodeficit,withStateborrowingsincreasingfromalmost $80billion,ormorethan$16,000perperson,in2014-15,to$122billion,ormorethan$21,000perperson,in2023-24.

TheIndependentQueenslandCommissionofAuditcommentedthatsince2005-06,theStatehadbeen‘livingbeyonditsmeans’,withexpensesgrowthsignificantlyoutstrippingrevenue.Intheperiodbetween2006-07and2010-11:

• Expensesgrewatanaverageannualrateof10.5%

• Revenuegrewatanaverageannualrateofonly6.9%

Asaproportionofrevenue,thedebtanddeficitinheritedatthetimeoftherespectivechangesofgovernment,waslargerinQueenslandthanfederally.Seechart3and4.

Debt to Revenue

0

20

40

60

%80

100

120

140

160

Qld

Cth

2001–20060

2

4

6%

8

10

12

2006–2011

Revenue

Revenue vs Expenditure GrowthExpenses

Chart 2: Revenue vs Expenditure Growth 2001-2011 Chart 3: Budget position Queensland vs Commonwealth

Chart 4: Budget position Queensland vs Commonwealth

“The State’s debt has reached unprecedented levels. Together with its published forward estimates showing an even greater volume of debt will be required, Queensland is now in ‘uncharted waters’ with respect to the volume of debt on issue and the resultant interest bill.”INCOMINGGOVERNMENTBRIEFPREPAREDBYQUEENSLANDTREASURYCORPORATION,MARCH2012

“Queensland’s fiscal position and outlook is unsustainable and restoration must be an urgent priority for this term of Government.”QUEENSLANDTREASURY–INCOMINGGOVERNMENTBRIEF,MARCH2012

Sources: Queensland Treasury and Trade - Report on State Finances

Deficit to Revenue

0

20

-20

%

Qld

Cth


Howdidourdebtgetto$80billion?

Expenditure exceeded incomeQueenslandhasexperiencedconsecutiveBudgetdeficitssince2006-07,meaningexpenditurewasgreaterthanrevenue.

Lack of fiscal disciplineFormanyyears,previousgovernmentsspentmoremoneythantheyearned,withBudgetdeficitstotalling$29billionbetween2006-07and2011-12,andadditionaldeficitslockedin.

Whilerevenuesmoderatedfrom2006,expendituresrosestrongly,openingagapbetweengovernmentincomeandgovernmentspending,whichhasthenwidenedandnecessitatedsubstantialborrowing.

ThepreviousGovernmentalsomovedawayfromfundingcapitalexpenditureoverwhelminglyfromoperatingcashflow,rapidlyincreasingthedebtburden.

In2005-06,just34%ofcapitalexpenditureonthingssuchasnewroads,newhospitalsandnewschoolswasfundedbyborrowings.By2011-12,96%ofallcapitalinvestmentintheQueenslandpublicsectorwasfundedfromborrowings1 .

1.IndependentQueenslandCommissionofAuditInterimReport,June2012

Chart 5: 2005-2006 Source of capital spending Chart 6: 2011-2012 Source of capital spending

Other

2005-2006 Source of capital spending 2011-2012 Source of capital spending

Borrowings

Asset sales

Cash from operating surpluses

34%

4%

57%

5%

96%

3%1%

“…large capital expansions and a significant increase in expenses led to a rapid and substantial growth in debt from 2006-07 onwards. The slowing of revenue growth from the highs experienced from 2006-07 to 2008-09, including as a result of the Global Financial Crisis from late 2008, also contributed to the rise in debt.” QUEENSLANDTREASURYINCOMINGGOVERNMENTBRIEF,MARCH2012 “Queensland’s budgetary

performance is the weakest of all the Australian States.”GLOBALCREDITRATINGAGENCYSTANDARDANDPOOR’SRATINGSSERVICES,RESEARCHUPDATE,SEPTEMBER2011


TheIndependentQueenslandCommissionofAuditregardedthepreviousGovernment’sforwardestimatesasoverlyoptimistic.Inparticular,theCommissionnotedthatBudgetimprovementwasreliantonthefollowingassumptions:

• 14%annualgrowthintransferdutyyearonyearfrom2013-14to2015-16,comparedtoaveragegrowthratesof5%intheyearsfollowingtheeventsintheinternationaleconomyin2008

• Arapiddecelerationinemployeeexpensesgrowthfromaverageannualgrowthof9.6%since2005-06to3.7%overtheforwardestimates

• Adeclineinnetcapitalexpenditurefrom$4.6billionin2012-13tolessthan$1billionin2015-16

TheCommissionalsonotedthatoptimisticroyaltyforecastswereakeydriverofgrowthinrevenueestimates.Asroyaltyrevenueisahighlyvolatileitem,theCommissionconsideredthataconservativebiasshouldbeappliedinforecastingthisitem,giventherisksanduncertaintiesinvolved.

Thestructuralbudgetdeficitledtoanincreaseinborrowingneededtofundcoregovernmentservices(especiallyinthenon-Governmentownedcorporationssector)whichcausedthelossofQueensland’sAAAcreditratingin2009.

Revenue challengesEconomicgrowthhasstronglinkstoGovernmentrevenues,andallotherthingsbeingequal,improvementsineconomicgrowthwillimprovetheStateBudgetposition.

However,in2014-15,itisestimatedthat47%ofQueensland’srevenuewillbesourcedfromCommonwealthpaymentsthroughGSTdistributionandpaymentsforspecificpurposes.Lessthanone-thirdofQueensland’srevenueissourcedfromStatetaxationandroyalties.Thismeansthat,forexample,a50%increaseinQueensland’staxandroyaltycollectionswouldonlyincreasetotalStaterevenueby15%.

Inotherwords,theState’scapacitytoraisesufficientrevenuethroughtaxationtopaydownthedebtisseverelylimited.Toraisefundsofthemagnitudenecessarytomakearealimpactonthedebt,taxincreaseswouldhavetobesolargetheywouldthreateneconomicgrowthbystiflingbusinessexpansionandconsumerconfidence,potentiallytriggeringtensofthousandsofjoblosses.Almostinevitably,taxincreasesofthisscalewouldalsoincreasecostoflivingpressuresoneverydayQueenslanders.

“Queensland’s financial position is unsustainable. The State is currently locked into a debilitating cycle of over-expenditure, ever-increasing levels of debt, and crippling increases in debt servicing costs. A major task of fiscal repair is imperative to prevent further damage to the future prosperity of the State.” INDEPENDENTQLDCOMMISSIONOFAUDITINTERIMREPORTJUNE2012


Dootherstateshavethesameproblem?

TheaveragedebtperQueenslanderisnow$16,209,higherthaneveryotherstateinAustralia.Thiswillonlyincreaseunlessstronganddisciplinedactionistaken.

Althoughdebtisforecasttogrowmoreslowlyovertheforwardestimates,asignificantreductionindebtlevelsisnotprojectedundercurrentpolicysettings.

Averagedebt-to-revenueratios-anindicatoroftheabilitytofunddebtrepayments-arehigherforQueenslandthananyotherAustralianstate,withdebtcurrentlyat146%ofrevenue.

In2009,ratingsagenciesconsideredthatthedeteriorationintherevenueoutlook,combinedwiththepreviousGovernment’scommitmenttomaintainingalargecapitalprogram,wouldfuelmorelargeincreasesindebt.Asaresult,QueenslandlostitsAAAcreditrating.ThismeansQueenslandersnowpayahigherinterestrateonthemoneytheStateborrows,comparedtootherstatessuchasNewSouthWalesandVictoria.

InitsbrieftotheincomingGovernmentin2012,theQueenslandTreasuryCorporationnotedthatifallpublicsectorborrowingswerere-financedatthemarginsatthetime,thepremiumpaidbytheStaterelativetopre-GFClevelswouldcostQueenslandabout$750millionperannum.MorerecentanalysisshowsQueensland’sborrowingcostswereapproximately$419millionhigherthanAAA-ratedstatesbetween2008-09and2013-14.ThiscostwasreducedbecauseoftheGovernment’simmediateandsubstantialfiscalrepairundertakensincecomingintooffice.

ThehighrateofdebtisbeingdrivenbyQueensland’scontinuingdeficits.Since2007-08Queenslandhashadthelargestdeficitsofallthestates.


Chart 7: Borrowings per person at 30 June 2014

$5,000

$7,000

$9,000

$11,000

$13,000

$17,000

$15,000

$16,209

VictoriaNew South Wales Western Australia

Average of other States ($8,834)

Source: State 2014-15 Budgets and 2013-14 Mid Year Reviews for NFPS borrowings. Population from 2014-15 Commonwealth Budget.

South Australia TasmaniaQueensland

Borrowings per Person by State at 30 June 2014

Borrowings per person at 30 June 2014

As at 30 June 2014every person

09-10 10-11 16-17 17-1815-16

1

1

14-1513-1412-13

Borrowings divided by total revenue (NFPS)Sources: ABS 5512.0, Report on State Finances and latest Budget Updates

11-1240%

100%

120%

60%

80%

140%

160%

Interstate Comparison of Debt to Revenue Ratios

Queensland (4.7m) NSW (7.4m) Victoria (5.7m)South Australia (1.7m) Western Australia (2.6m)

Chart 8: Interstate comparison of debt to revenue ratios1

Note: 1. Borrowings divided by total revenue (NFPS). Sources: ABS 5512.0, Report on State Finances and latest Budget Updates


-9

-8

-7

-6

-5

-4

-3

-2

0

-1

1

2

$ bi

llion

07–08 08–09 09-10 10-11 11-12 12-13 13-14

Deficits by StateSources: Various state budgets, mid-year reviews and annual reports.

VicNSW Qld SA WA Tas

Chart 9: Comparison State debt Chart 10: Comparison State interest expense

Chart 11: Deficits by State

South Australia (1.7m)Western Australia (2.6m)Victoria (5.7m)

09-10 10-11

Source: 2014-15 State Budgets and 2013-14 Mid Year Reviews

15-16 16-17 17-1814-1513-1412-1311-120

10

20

40

50

60

70

80

90

30

Comparison State Debt and Population

Queensland (4.7m) NSW (7.4m)Tasmania (0.5m)

$ bi

llion

Source: 2014-15 State Budgets and 2013-14 Mid Year Reviews Source: 2014-15 State Budgets and 2013-14 Mid Year Reviews

Source: Various State budgets, mid-year reviews and annual reports

0

1.0

2.0

3.0

4.0

5.0

Comparison State Interest Expense and Population

$ bi

llion

09-10 10-11 15-16 16-17 17-1814-1513-1412-1311-120

South Australia (1.7m)Western Australia (2.6m)Victoria (5.7m)Queensland (4.7m) NSW (7.4m)Tasmania (0.5m)

Source: 2014-15 State Budgets and 2013-14 Mid Year Reviews

“This reduction in debt cannot be done by adjustments to the State operating statement. To illustrate, if the Government were to achieve a consistent fiscal surplus of 1% of revenue year after year, it would take 50 years to reduce debt by $25 billion.”INDEPENDENTQUEENSLANDCOMMISSIONOFAUDITFINALREPORT, FEBRUARY2013

“ There is no magic pudding. Government must strive to live within its means, not simply because it’s a good thing to do, but to ensure we have the funds available to invest, create jobs and grow the Queensland economy.”

2013QUEENSLANDBUDGETADDRESSOFTHETREASURER2

2.2013QLDBudgetAddress http://www.budget.qld.gov.au/current-budget/budget-papers/bp1.php


Whyactionisneeded–thecostofdoingnothingQueensland’seconomywillgrowfasterthanotherstatesoverthenextdecade.ButthateconomicgrowthwillnotbeenoughtoreturntheBudgettosurplus.Indeed,withgrowthcomesgrowingpains:theaddedpressuresanddemandsofarapidlychangingandexpandingeconomyandpopulation.

Queensland’seconomyisexpectedtogrowby3%in 2014-15,withgrowthforecasttodoubleto6%in 2015-16.Inbothyears,Queensland’srateofgrowthisstrongerthancurrentlyforecastinotherstates,andisoutpacingthenationalforecastsof2.5%growthin2014-15and3%in2015-16(asoutlinedintheCommonwealth’s2014-15Budget).

However,whilerevenueswillincreaseasaresultofthisgrowth,theyaregrowingmoreslowlythanbefore,andareexpectedtobeoutpacedbytheGovernment’sexpensesoverthemediumterm.

Inthenextdecade,ourpopulationwillgrowby1million–andbyanother1.5millioninthe10yearsafterthat.Bythen,Queenslandwillhaveanextra650,000peopleovertheageof65,andwillneedtoeducateanother400,000schoolchildren.BasedonQueenslandTreasurydemandprojections,healthexpenditureisforecasttogrowat8%ayear,whileeducationwillgrowat5.75%ayear.

To maintain our current standard of living and to prepare for the needs of our growing and changing State, Queensland will need new schools, hospitals, roads, highways, rail lines and bridges.

TheGovernmentalreadyhasbigplanstomeettheseneeds.ButifQueensland’s$80billiondebtisnotfirstbroughtundercontrol,theStatewillnothavethecapacitytofundtheseplansinasustainableway.

Instead,becauseofthesegrowingexpenses,thepredictedreturntoBudgetsurplusin2015-16willbeshort-lived–withtheBudgetpredictedtoreturntoafiscaldeficitfrom2018-19onwards.

EvenunderascenariowhichinvolvesstrongerrevenuegrowthandlowercapitalexpenditurethanQueenslandTreasury’sbaselinemediumtermprojections,Budgetdeficitswouldre-emerge,therebyresultinginevenmoredebt.Ifactionisnottaken,taxeswillneedtoriseorservicesreducedfortheStatetobeabletomeetsitsgrowinginterestpayments.

Withoutdecisiveanddisciplinedaction,Stateborrowingsareprojectedtoincreasefromalmost$80billion,ormorethan$16,000perpersonin2014-15to$122billion,ormorethan$21,000perperson,in2023-24.Meanwhilethe‘deadmoney’ofinterestpayments,currentlyat$4billionannually,willcontinuetogrowanddrainfundsfromthepubliccoffers.

Insummary,the$80billiondebtisnotashort-termproblem,butonethatwillimpactontheStatefordecades,ifnotreducednow.Thechildrenandgrandchildrenoftoday’sQueenslanderswillbeforcedtopayforthewasteandilldisciplineofpreviousgovernments,andbeartheburdenoflostopportunitiesandeconomicinsecurity,unlessstrongandsmartchoicesaremade.

What could the

$4b a year

in interest payments be

better spent on?

Build 25 new primary schools, and

rebuild a 300-bed regional hospital,

and, build 900km of new highway


Actionplan:BudgetrepairtodateThescaleofthedebtproblemhasbeenapparentforseveralyears.In2009,thepreviousGovernmentsoldarangeofassets,includingpartofQueenslandRail,StateForestsandthePortofBrisbanetoaddresstherapidlygrowingdebt.However,thisdidnotleadtoalastingimprovementindebtlevelsbecauseofafailuretoreininspendingandpay down debt .

WhenthecurrentGovernmentwaselected,Queenslandwasontracktoreachrecordlevelsofdebt.InthepreviousGovernment’slastofficialbudgetdocumenttheyhaddebtreaching$85.4billion,orover$17,600perperson,in 2014-15.

TheGovernmentimmediatelyappointedtheIndependentQueenslandCommissionofAudittoseekrecommendationsonstrengtheningtheeconomyandrestoringtheState’sfinancialpositionandlong-termsecurity.

Followingtheserecommendations,theGovernmentimplementedanewBudgetstrategyandsignificantfiscalrepairinthe2012-13Budget,withmeasuresestimatedtohavesaved$7.8billionovertheperiod2012-13to2015-16.

TheGovernmenthasmadesavingsbycuttingwastelikeGovernmentcorporateboxesatstadiumsandexitingbusinessessuchastheGovernmentprinterandaGovernmentnurserybusiness,whichwerenotcorebusinessesandweredrainingfundsfromessentialgovernmentservices.

-10

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-4

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2

$ bi

llion

2013-14 2014-15 2015-16 2016-17 2017-18

Benefits of fiscal repair on Fiscal BalanceSource: Economic and Fiscal Challenges

Surplus budgetDeficit position without budget repairDeficit budget

Chart 12: Benefits of fiscal repair on fiscal balance

Source: Economic and fiscal challenges

“Queensland has seen the most dramatic weakening in state finances since 2007… [Increased expenditure by] the Labor governments in office after 1997… left the State exposed when it experienced a steep decline in revenue after 2007. It continues to struggle with a large operating deficit. The new Government in 2012 has taken a much stronger approach to curbing operating expenditure and the capital program is moderating as projects are completed.”‘STATESOFDEBT’,ROBERTCARLING (CENTREFORINDEPENDENTSTUDIES,MARCH2014)

“The borrowing program of the State increased faster than the growth in State revenues over the past five years, and accordingly its capacity to reduce debt is worse than five years ago.”AUDITORGENERAL/QUEENSLANDGOVERNMENTFINANCIALSTATEMENTSREPORTTOPARLIAMENTNO.7

“Like any organisation, (the Government) must live within its means and soundly manage the finances over the long term.”AUDITORGENERAL/QUEENSLANDGOVERNMENTFINANCIALSTATEMENTSREPORTTOPARLIAMENTNO.7


Chart 13: The 2011-12 Mid Year Fiscal and Economic Review (the former Government’s last budget document)

Source: 2011 – 2012 Mid Year Fiscal and Economic Review

Mid Year Fiscal and Economic Review 2011-12 34

Assets Financial Assets

Cash and deposits 1,996 2,080 2,316 2,569 2,687 Advances paid 1,296 1,117 1,114 1,111 1,128 Investments, loans and placements 34,466 34,845 35,894 37,263 38,263 Receivables 4,565 5,283 5,451 5,627 5,748 Equity

Investments in other public sector entities (1,088) (1,511) (1,511) (1,511) (1,511)Investments - other 222 285 345 360 378

Total Financial Assets 41,458 42,100 43,609 45,421 46,693

Non-financial Assets Land and other fixed assets 240,347 232,140 243,207 251,825 259,526 Other non-financial assets 791 917 982 1,054 1,170

Total Non-financial Assets 241,138 233,057 244,188 252,879 260,697

Total Assets 282,596 275,156 287,797 298,300 307,390

LiabilitiesPayables 4,123 4,657 4,795 4,881 4,984 Superannuation liability 25,832 25,677 25,929 26,102 26,127 Other employee benefits 5,598 5,723 6,122 6,542 6,955 Deposits held 16 23 25 28 30 Advances received 740 584 572 555 511 Borrowing 65,088 62,352 74,172 81,378 85,378 Other liabilities 4,176 4,859 4,910 5,094 5,210 Total Liabilities 105,573 103,875 116,527 124,580 129,195

Net Worth 177,023 171,282 171,271 173,719 178,195 Net Financial Worth (64,115) (61,775) (72,918) (79,159) (82,502)Net Financial Liabilities 63,028 60,264 71,407 77,648 80,991 Net Debt 28,085 24,916 35,445 41,016 43,841

Notes:1. Numbers may not add due to rounding.

$ million $ million

2013-14Projection $ million $ million

2011-12Revised $ million

Table 16Non-financial Public Sector Balance Sheet 1

2011-12Budget

2012-13Projection

2014-15Projection

$85,378


TheGovernmenthasalsotakenanumberoftoughdecisionsthathaveputQueensland’sBudgetontracktoreturntosurplusin2015-16–thefirstBudgetsurplusinadecade.

Thesesavingsinclude:

• Cuttingspendingoncontractors,consultants,advertisingandtravel

• Abolishingredundantcarbonschemes

• RefocusingtheFirstHomeOwnersGranttoprovideaboostfornewconstruction

• Additionaldepartmentalsavingsof$100millionperannumfrom2014-15onwards

Inthedecadeto2011-12,expensesgrowthaveraged8.9%ayear.TheGovernment’smeasuresinthe2012-13Budgetresultedinexpensesgrowthofjust0.2%,thelowestsinceaccrualaccountingcommencedin1998-99,andagrowthofonly2.2%in2013-14.

Afallinactualemployeeexpensesin2012-13of0.7%(or$120million)andafurther$224million(1.2%)in2013-14,hasmadeamajorcontributiontothisoutcome,andcontrastswithaverageemployeeexpensesgrowthof8.6%perannuminthedecadeto2011-12.

The Queensland Government has a strong record in growing the State’s four-pillar economy during the past two years.

ConstructionIn construction,theGovernmenthassimplifiedplanningprocessesandreformed assistanceforfirsthomebuyers.Dwellingapprovalsare34.9%higherthanwhenGovernmentcametooffice.

ResourcesIn resources,theGovernmentstreamlinedapprovalprocessesandestablishedaResourcesCabinetCommitteetostimulateanddriveinvestment,inresponsetothechallengesofgloballydepressedcoalprices.

TourismIn tourism,theGovernment’sDestinationQcommitmentisworkingwiththeindustrytoincreaseovernightvisitorexpenditureto$30billionayearby2020.VisitornightsfromChina,reachedarecord2.2millionvisitornightsin2013,upfrom1.3millionin2011.

AgricultureIn agriculture,theGovernmenthasreformedvegetationmanagement,givingfarmersmorecontroloverroutinelandmanagementthatboostsproduction.

“This reduction in debt cannot be done by adjustments to the State operating statement. To illustrate, if the Government were to achieve a consistent fiscal surplus of 1% of revenue year after year, it would take 50 years to reduce debt by $25 billion.”INDEPENDENTQUEENSLANDCOMMISSIONOFAUDITFINALREPORT, FEBRUARY2013


TheGovernmenthasalsotakentoughbutdisciplinedactionby:

• Increasingcoalroyaltyrates

• Increasingtransferdutyratesonpropertiesvaluedat over$1million

• Increasinggamblingtaxes

• Increasingthedutyratesongeneralinsuranceproducts

• ExtendingtheEmergencyManagement,Fireand RescueLevy

• Deferringtheplannedincreaseinthepayrolltaxthreshold,todeliveranadditional$315millioninrevenuebetween2013-14and2016-17

Thesechoiceshavemeantborrowingsat30June2016areforecasttobe$9.2billionlowerthanthecomparableestimateintheIndependentQueenslandCommissionofAudit’s InterimReport.

But while these decisions have significantly slowed the growth of debt, they have not resulted in the necessary reduction in debt.

“Queensland’s financial position is unsustainable. The State is currently locked into a debilitating cycle of over-expenditure, ever-increasing levels of debt, and crippling increases in debt servicing costs. A major task of fiscal repair is imperative to prevent further damage to the future prosperity of the State.”INDEPENDENTQUEENSLANDCOMMISSIONOFAUDITINTERIMREPORT,JUNE2012

Chart 14: General Government Expense GrowthSource: Report on State finances to 2012-13, 2014-15 State Budget.

4%

2%

0%

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8%

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2002

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General Government Expense Growth

Annual growth Average 2001-02 to 2011-12 Average 2012-13 to 2017-18

Sources: Report on State Finances to 2012-13, 2014-15 State Budget

Whatmustbedonenow?BeforetheGovernmentcanturnitsbigplanstobuildtheeconomyintoreality,wemustfirstdealwiththeaccumulateddebtofthepast10years.

The Independent Queensland Commission of Audit recommended the State reduce its debt by $25 billion to $30 billion. This will reduce the interest bill by about $1.3 billion, to a level where payments are sustainable and will not impede the Government’s plans to build for the future.

QueenslandwillbeabletoaffordthecriticalinfrastructureagrowingStateneedsandcreate acapacitybufferforfutureevents.


StrongChoices

StrongChoices–TheCampaignTheGovernmenthasacommitmenttoeconomicliteracyandbelievesQueenslandersdeservetobefullyinformedabouttheirState’sfinances.TheStrongChoicescampaignwasdesignedtohelpQueenslandersunderstandtheproblemscreatedbytheunprecedented$80billionStatedebtand $4billioninterestbill,andthechoicesGovernmenthasavailabletoreducethedebttoamoresustainablelevel.

ThecampaignincludedAustralia’sfirstinteractive‘People’sBudget’,whichgavepeoplethechancetonominatetheir

ownspendingandsavingsprioritieswithinaStateBudgetframework,andsubmitthemtotheGovernment.

AseparateinsertincludedwiththisreportgivesamoredetailedsummaryoftheindividualelementsoftheStrongChoicescampaign,andtheunprecedentedpublicparticipationandfeedbackreceived.

StrongChoicesToreducethe$80billiondebt,theGovernmenthasthreechoices.Itcan:significantlyincreasetaxes,reduceservices, orsellorleasesomegovernmentassets.

EachofthesechoiceswillhavedifferentimpactsontheState’sBudget,economyandthebroadercommunity.TheStrongChoicescampaigngaveQueenslandersaninsightintothecomplexchallengesfacingtheStateGovernmentasitaimstoreducethedebttoasustainablelevelforfutureprosperity,whilebalancingimmediateandlegitimatedemandslikefundingfrontlinestaffinessentialservices,andmaintainingandupgradingvitalinfrastructureincludinghospitals,schoolsandroads.

“Governments have to make tough choices… We will be far better off if they make these decisions sooner rather than later. Leaving the problem to future taxpayers is deeply unfair.”JOHNDALEY,CHIEFEXECUTIVEOFFICER,GRATTANINSTITUTE,MAY2014

StrongChoices: Significantly increasetaxesOneofQueensland’scompetitiveadvantagescomparedtootherstatesisitslowtaxregime,whichencouragesinterstateandinternationalinvestment.The2014-15StateBudgetshowstaxationrevenuepercapitainQueenslandwillbe$2,601in2014-15,comparedtoanaverageof$3,137acrosstheotherstatesandterritories.

AstheGovernmentworkstostrengthenQueensland’sfour-pillareconomy,foundedonagriculture,tourism,constructionandresources,itiscommittedtomaintainingthisadvantage,whichwillhelpstimulateinvestmentandfueljobsgrowthinthesevitalsectors.

“Queensland cannot be a high-spending and low-taxing State. It needs to choose between two alternatives:

• High taxing and high spending

• Lower taxing and lower spending

Either expenditure (both recurrent and capital) needs to be wound back or revenues need to be dramatically boosted, so that the accumulation of further debt is arrested.”INDEPENDENTQUEENSLANDCOMMISSIONOFAUDITINTERIMREPORT,JUNE2012


STRONG CHOICES INCREASE TAXES?REDUCE SERVICES?SALE OR LEASE OF ASSETS?

Tax per person by StateSource: 2013-14 MYFER except Vic and WA 2014-15 Budgets, Commonwealth Budget

$3,542WA

$2,309NT

$3,257NSW

$2,601QLD

$3,063Vic

$1,914Tas

$3,518ACT

$2,628SA

Source: 2013-14 MYFER except Vic and WA 2014-15 Budgets, Commonwealth Budget.

Chart 15: Tax per person by State

20 The Strongest & Smartest Choice20 The Strongest & Smartest Choice

StrongChoicesontax–whattheGovernment hasalreadydoneSincebeingelected,theGovernmenthasmadeanumberoftoughdecisionstoraiserevenueandputQueensland’sBudget onasustainablepathbacktosurplus.Thisincludesincreasesintaxesandcharges,including:

These targeted increases in taxes were considered vital for fiscal repair. In determining the appropriate level for the increases, the Government’s guiding principle was always to maintain a balance between achieving a return to surplus, while not increasing taxes to a point that would inhibit economic growth or unfairly increase the cost of living pressures for Queenslanders.

Increases in coal royalty rates. The single royalty rate of 10% on value above $100 per tonne was increased to 12.5% on the value between $100 and $150 per tonne, and 15% on the value above $150 per tonne.

Increases in duty rates on general insurance products, to assist in funding Queensland’s contribution to the National Disability Insurance Scheme. The rate of duty across all general insurance products is now 9%.

Extending the Emergency Management, Fire and Rescue Levy to all rateable properties to ensure a sustainable funding base for emergency management services.

Increasing transfer duty rates on properties valued at over $1 million from 5.25% to 5.75%.

Increased gambling taxes on gaming machines and casinos by almost $70 million over four years.

“Higher taxes may actually be counterproductive. If Queensland’s tax regime becomes uncompetitive with other states, the Government’s fiscal situation could become worse as investment will flock to other jurisdictions across the country or overseas. Less investment ultimately means less tax revenue. It is critical that all Queenslanders are armed with an appreciation of the risks associated with higher taxes when they engage in this important discussion about the State’s future.”KATHYMACDERMOTT,QUEENSLANDEXECUTIVEDIRECTOR,PROPERTYCOUNCILOFAUSTRALIA,APRIL16,2014

Queensland’s Plan for Secure Finances and a Strong Economy 21Queensland’s Plan for Secure Finances and a Strong Economy 21

TheFederalGovernmenthastheexclusivepowertotaxincome,whilethestatesraisefundsfromarelativelysmallnumberofnarrowlybasedtaxes.Stategovernmentshavecontroloverrevenueprimarilyfrom:

• Statetaxes,suchaslandtaxandpayrolltax

• Revenuefromthesaleofgoodsandservices

• Royaltiesfromtheminingofmineralresources

TheGovernmentisawaremanyQueenslandersarealreadyexperiencingconsiderablecostoflivingpressures,andatthistimeraisingtaxeswouldonlyservetoincreasethosepressures.

Significantly,ifincreasingtaxeswasthestrongchoiceused toreducethe$80billiondebtbythetargetofatleast $25billion,thiswouldrequireadramatic50%increaseintheGovernment’srevenuefromtaxesandroyalties.ThiswouldunderminetheGovernment’scommitmenttoprovidingacompetitivetaxenvironment,whilesubstantiallyaddingtocostoflivingpressuresforeverydayQueenslandersandthreateningeconomicgrowthbydiscouraginginvestmentaroundtheState.

TheStrongChoices‘People’sBudget’tooldemonstratedthis,providingQueenslanderswith15optionstoincreasetaxesandroyalties.Selectingalloftheseoptionswouldhaveallowedparticipantstoachieveadebtreductionofupto$58.7billionoverthethreeyearsfrom2014-15to2016-17,whichwoulddoubletaxandroyaltycollections.Thetotalrevenuefromtaxationandroyaltiesin2014-15iscurrentlyestimatedatonly$15.1billion.

Someofthemostsignificanttaxationchoiceswithinthe‘People’sBudget’toolwere:

Payroll TaxIncreasingpayrolltax(a50%increasewouldraise$7.4billionoverthreeyears)wouldimpact“mumanddad”smallbusinessesasitwoulddramaticallyincreasethecostofdoingbusinessandactasadisincentiveforinvestmentandjobcreation.Thiswouldhavecripplingflow-oneffectsonthewholeeconomy,asbusinesseswouldultimatelypassontheincreasedtaxaslowerwagesorfewerjobsresultinginlosthouseholdincome.

Evenonamuchsmallerscale,anincreaseinpayrolltaxwouldhavesignificantnegativeeffectswhilehavingalimitedimpactondebtreduction.QueenslandTreasurymodellingshowsanincreaseinthepayrolltaxratefromthecurrent4.75%to6%wouldraiseanextra$1billion.Howeverthemodellingalsoshowsthatintheyearfollowingthetaxincrease,Queensland’seconomywouldbe$800millionworseoff,andalmost10,000fewerjobswouldbeavailableforQueenslanders.

Wageearnerspredominantlyfeelthecostsofpayrolltaxincreases.Althoughpayrolltaxisimposedonemployers, itincreasesthecostofemployinglabour.

Inthelongrun,firmswillattempttomaintainprofitabilitybyincreasingpricesand/orcuttingstafforotherwisemoderatingwagegrowth.Thishastheeffectofpushingtheburdenoftaxincreasesontohouseholdsbyreducingrealwagegrowthandfuellingcostoflivingpressures.

Themodellingalsoshowsthatareductioninannualwagesof$439fortheaverageQueenslandworkerwouldresultfromanincreaseinpayrolltax.Asaresult,realconsumptioninQueenslandisprojectedtobearound$1.3billionlowerin2025thanitotherwisewouldhavebeen.

Thisisequivalenttoalossof$221foreveryQueenslander.

Property TaxesIncreasingpropertytaxesthroughtransferduty(a75%increasewouldraise$6.2billionoverthreeyears,removingthefamilyhomeconcessionwouldraise$1.1billionoverthreeyears,removingfirsthomebuyerconcessionswouldraise$736millionoverthreeyears)wouldreducetheaffordabilityofhomesforfamiliesandfirsthomebuyers,makingitmoreexpensiveforQueenslanderstomovehousetofollowjobopportunitiesortodownsizeastheirneedschange.

Impactoffurtherincreasingtaxes

SummaryAsignificantincreaseintaxes,toreducedebtbyatleast$25billionwould:

• Requireadoublingoftotalstatetaxation,whichwoulddramaticallyincreasethecostofdoingbusinessanddiscourageinvestmentandjobcreation

• Resultinan$800millionhittotheQueenslandeconomy,whenitcanleastaffordit

• Meanthelossof10,000jobs

• Severelyreducehousingaffordabilityforfamiliesandfirsthomebuyerstogetherwithreducingconstructionactivity

• MakeQueenslandbasedresourcecompanieslesscompetitive,forcingthemtoconsidertheiroperationsand

• Makethefamilymotorvehicleregistrationcoststhehighestinthenation


“The coal sector for example has shed over 8,000 jobs in Queensland in the face of some of the most challenging business conditions in decades. There can be no dispute that the best means of boosting the resources sector contribution to the state’s fiscal repair task is the pursuit of policies to promote sector growth, not a resort to job-destroying tax increases… Queensland already sits amongst the regions with the top taxation rates globally.”QUEENSLANDRESOURCESCOUNCILSTATEMENT,APRIL2014

“Any move to increase royalties will further impact operations and communities in the form of job losses and mine closures. It will place significant pressure on the industry and its shareholders and will undermine the confidence of mining houses considering investments in Queensland.”JOINTLETTERTOTREASURERTIMNICHOLLSFROMHEADSOF19MAJORCOALCOMPANIES,7MAY2014

Increasedtransferdutywouldalsodiscourageinvestmentactivityincommercialpropertyandbusinesses.Increasinglandtax(a75%increasewouldraise$2.4billionoverthreeyears)orapplyinglandtaxtoallproperties($10.55billionoverthreeyears)wouldincreasethecostofpropertyownership,includingthefamilyhome,andaddcostpressurestohomeowners,businessesandrenters.

RoyaltiesTheStateearnsroyaltiesfromminingandpetroleumprojectsinQueensland,withover75%ofroyaltyrevenuecomingfromcoalmines.Increasingroyalties(a75%increaseinallroyaltieswouldraise$8.8billionoverthreeyears)wouldmakeQueenslandbasedresourcescompanieslesscompetitiveontheworldmarket.

Ultimately,thesecompanieswouldchoosetoclosemines,andabandonthedevelopmentofothers.Thiswouldalsohaveanindirectimpactonbusinessesasindustriesthatsupporttheminingindustrywouldcontract,householdswouldbeimpactedthroughtheassociatedlossofjobsandtheoveralleconomywouldexperienceareductionofinvestmentandthelossofexportswouldreduceeconomicgrowth.

AnalysisconductedfortheQueenslandResourcesCouncilfoundthat,evenwithoutanincreaseinroyaltyrates,lowcoalpricesmeanthat10%ofQueensland’scoaliscurrentlybeingproducedatasignificantloss.

Motor Vehicle Registration FeesIncreasingvehicleregistrationfees(doublingregistrationfeeswouldraise$5.9billionoverthreeyears)wouldincreasethecostofrunningthefamilycaraswellastransportandbusinesscosts,resultingincostoflivingincreasesforQueenslanders.

Doublingthefeewouldincreasethecostofregistrationfor a6cylinderfamilycarfrom$492to$984.Thiswouldcomparewitharegistrationcostof$482inNewSouthWalesor $238inVictoria.Itisexpectedthatbusinesses,inparticular,wouldseektotakeadvantageofthisdifferentialbyregisteringvehiclesinotherstates,leadingtorevenueleakagefromQueensland .

www.StrongChoices.qld.gov.auwww.StrongChoices.qld.gov.au

Great state. Great opportunity.

HOW YOU HAD YOUR SAY

STRONG CHOICESCONSULTATION REPORT

We have developed a methodical, disciplined and constructive Draft Plan of Action to secure our finances and build a brighter future by paying down debt.

We have been able to develop this draft plan because of the feedback that more than 70,000 Queenslanders gave us through the People’s Budget submission process.

We have been able to combine this valuable feedback with the independent advice we have received through the Independent Queensland Commission of Audit, Queensland Treasury and Trade reports, together with other economic reports such as the Grattan Institute’s ‘Budget Pressures on Australian Governments 2014.’

We have considered the feedback, evidence and advice, together with the decisions made in the Federal Budget, to ensure the draft plan reflects the reality of the financial environment and the new tax and services landscape.

Not everyone will agree with all the choices we have made about how to pay for things in the future. But Queenslanders will know we have funding certainty, so that we can invest in the things we need for a growing State, like hospitals, schools and roads.

The Draft Plan of Action indicates a pathway to reducing our $80 billion debt through asset transactions and gives us the opportunity to reinvest some of the funds into hospitals, schools and roads.

The Strong Choices Investment Program is a lasting legacy for Queensland, as a result of having the courage to make the strongest and smartest choice for reducing our $80 billion debt.

The Strong Choices Investment Package will establish a series of funds to provide ongoing support for a broad range of public infrastructure projects over the next six years;

• Future Fund (Natural Disasters) • Bus and Train Project • Local Government Co-Investment Fund • Public Transport Rail Infrastructure Fund • Rural and Regional Roads Fund • South East Queensland Roads Fund • Rural and Regional Economic Development Fund • Entrepreneurial and Innovation Fund • Future Schools Fund • Community Hospitals Fund • Cultural Infrastructure Fund

By reducing our $80 billion debt, we can now have the funding certainty to build and invest in the things we need for a growing and ageing population, ensuring Queenslanders have a strong and prosperous future.

Queenslanders are now invited to give feedback on how they would like funds from the Strong Choices Investment Package to be allocated. Individuals, community groups, councils and organisations are encouraged to visit www.StrongChoices.qld.gov.au and have their say. The Government will release its final plan in September 2014.

HOW YOUR SAY MATTERS

OUR NEXT CONVERSATION

The Strongest and Smartest Choice is Queensland’s plan for secure finances and a strong economy

September 2014

Final Strong Choices Plan of ActionThe Strongest and Smartest Choice

3 June – 15 August 2014

Strong Choices feedback on spending prioritiesThe Strongest and Smartest Choice Draft Plan of Action

3 June 2014

The Strongest and Smartest Choice Draft Plan of Action

Virtual Town HallsCommunity Engagement

Strong Choices Community ForumsCommunity Engagement

Strong Choices Shopping Centre Information BoothsCommunity Engagement

55,664 People’s Budget

Submissions

February – April 2014

Community Leader RoundtablesCommunity Leader Engagement

From 13 April - 19 May

People’s Budget Interactive ToolCommunity Engagement

Strong Choices

Community Engagement Timeline

28%of submissions

mostly chose taxes

“Who is the QLD government actually in debt with? Who do they borrow from?”

“Tell us what we’ve got to show for this $80billion dollars debt & who has

been responsible for this $80billion dollars debt?”

“Great way to get public buy in. Hope they

actually use the feedback #haveasay @StrongChoices

#StrongChoices”

“If all the assets have been sold or leased how is the Government going to

sustain spending in the future?”

“Another prob w/ #strongchoices was there were a limit amount of tax increases. Couldn’t reduce debt to 0, w/o cut services or selling assets”

“Submitted my Strong Choices Peoples Budget!

Good way to have your say! Check it out online #qld

#StrongChoices”

“More than 5000 people have submitted their ‘People’s Budget’ in less than 24 hours”

“Pretty cool online budget tool. Q’s weren’t easy but

leasing assets seems okay to me. #StrongChoices

StrongChoices.qld.gov.au”

18%of submissions mostly chose reduce services

46%of submissions mostly chose

selling or leasing assets

8%of submissions had

no strong preference

Most submissions

received

93%Interest savings

reinvested

27,400Strong Choices social media conversations

We are here

Twitter commentTwitter comment Facebook commentCourier Mail, 15 April 2014

Mount Isa

Longreach Emerald

Cairns

Townsville

Mackay

Gladstone

Charleville

Rockhampton

Bundaberg

Hervey Bay

Noosa HeadsNoosavilleKingaroy Maroochydore

Caloundra

Logan

Kawana

North LakesChermside

CarindaleToowoombaIpswich

Brisbane

Springfield Lakes

Helensvale

Mt Gravatt

Robina

SouthportSurfers ParadiseBroadbeach

Hervey BayNoosavilleNoosa HeadsKingaroyMaroochydoreKawanaCaloundraNorth LakesChermsideToowoombaBrisbaneCarindaleIpswichMt GravattSpringfield LakesLoganHelensvaleSouthportSurfers ParadiseRobinaBroadbeach

CairnsTownsvilleMount IsaMackayRockhamptonLongreachEmeraldGladstoneBundabergCharleville

Information Booths

Community Forums

Virtual Town Halls

Community Leader Roundtables

Toowoomba Region O

ver

Twitter comment Twitter commentFacebook commentFacebook comment

Held throughout Queensland, the two hour meetings with the Treasurer have brought together more than

380 leaders from Chambers of Commerce, industry groups, unions, Councils, not-for-profit groups, education and

services sectors to discuss the choices, fielding hundreds of questions and statements.

“Reduce services – most realise we can not continue to support extensive services.” Toowoomba Roundtable

“Look at selling non-income producing assets.” Sunshine Coast Roundtable

“Thank you for engaging the community on these tough decisions.” Mackay Roundtable

“Where will the debt level be in five years?” Gladstone Roundtable

COMMUNITY LEADER ROUNDTABLES

An Australian first, the People’s Budget gives people an insight into the Budget process by providing

a range of information to understand the choices available to Government to reduce debt.

“ A very enlightening exercise – hard decisions needs to be made – a sacrifice by everyone is required.”

People’s Choice submission South Stradbroke

“Thanks for the opportunity to contribute.” People’s Choice submission Dalveen

“We are very lucky for what we have but we just need to tighten up a bit and run the State like a business and have a sustainable

budget.” People’s Choice submission Bundaberg

“How did we end up in debt?” People’s Choice submission Wacol

PEOPLE’S BUDGET INTERACTIVE TOOL

Public forums with the Treasurer were open to communities across Queensland, with more than

400 people taking up the opportunity to ask a question or make a direct statement on the ‘Strong Choices’

in each two-hour forum.

“Thank you Treasurer, this has been a really valuable and meaningful opportunity.” Kingaroy Community Forum

“How do we avoid this debt situation happening again?” Springfield Lakes Community Forum

“How would asset leasing really work?” Bokarina Community Forum

“Increase revenue through mining taxes.” Mt Gravatt Community Forum

COMMUNITY FORUMS

PEOPLE’S BUDGET It was an Australian first, an interactive tool that gave people an insight into the Budget process by providing a range of information to select from 52 choices to reduce the State’s $80b debt. Advertising over 37 days encouraged Queenslanders to participate in the most far-reaching public

consultation on the economic choices facing a community. The submissions grew steadily through both the interactive tool and hardcopy formal submission documents resulting in 56, 664 individual considered submission.

“Put a freeze on politicians salaries.” Facebook comment

“Put up GST, mining taxes, don’t sell assets.” Facebook comment

“I do appreciate this initiative but it is difficult to say yes to some of these cuts when they include things that are essential services.”

Facebook comment

“Just did Strong Choices thingy and was pleasantly surprised by enjoying the experience.” Twitter

“Increased taxes on property and spent the extra revenue on public transport and community infrastructure.” Twitter

SOCIAL MEDIA

Automated calls were placed on four evenings throughout Queensland inviting people to participate in a virtual town

hall with the Treasurer from the comfort of their own home. More than 20,000 people participated asking the Treasurer directly over 150 questions.

“I’m a small business owner, and when the books don’t balance, and when the overdraft is crying as the interest rate goes, I have to go back and go “alright, where did I stuff up?”, basically. Where did I

overspend specifically. Can you tell me where they overspent?” Outback & Darling Downs Virtual Town Hall

“I was wondering if there’s any way the Government can put any legislation in to safeguard, to stop this happening in the future - to

stop Governments spending money where it’s not wisely done.” Outback & Darling Downs Virtual Town Hall

“Families are struggling and you’re taxing them more and they can’t afford to be taxed, especially when you’re paying off a house and

everything like that. Families cannot afford to be taxed like you’re doing.” Hervey Bay Virtual Town Hall

VIRTUAL TOWN HALLS

People’s Budget interactive tool was brought directly to the public at 27 information booths in shopping

centres and libraries throughout Queensland. Thousands of people asked questions, made

submissions and received extra information about the State’s debt challenge.

“Which assets are earning more and which aren’t?” Rockhampton Info Booth

“Do not increase the mining tax.” Mount Isa Info Booth

“Just increase taxes.” Noosaville Info Booth

“This has been a great way for the Government to get more in touch with the people.”

Robina Info Booth

INFORMATION BOOTHS

COMMUNITY INVOLVEMENTOur $80 billion debt and $4 billion interest bill is holding our State back and is a problem we needed to all face together. We knew that community leaders would want to understand the problem and what needed to be done.

By hosting community forums and virtual town halls around the state, people from every corner of Queensland were given direct access to the Treasurer to ask questions and better understand the debt situation. Not wanting anyone to miss

out, we also visited local shopping centres and libraries and distributed an outline of the debt challenge to every Queensland household. Through this consultation process, we made sure every Queenslander had the opportunity to get involved and have their say about the future of our State. Throughout Queensland, thousands of people took the opportunity to participate, to have their say, make a statement or two and ask tough questions.

HOW YOU HAD YOUR SAY

The Government has always believed Queenslanders deserve to be fully informed about their State’s finances. That is why we launched the Strong Choices campaign and the People’s Budget tool, to help Queenslanders understand the debt challenge.

As recommended by the Queensland Independent Commission of Audit, the State’s debt needs to be reduced by $25-30 billion. To do this, we can: significantly increase taxes, substantially reduce or cut services, or sell or lease some public assets. There are no easy choices.

Through Australia’s first People’s Budget, Queenslanders had the chance to tell the Government their own spending and saving priorities.

Never before in Australia has there been this level of public consultation about the economic choices facing a community.

Over 255,000 people visited www.StrongChoices.qld.gov.au and more than 55,000 people completed and submitted their own People’s Budget, to tell us their priorities for saving and spending.

Thousands more also visited information booths and participated in community forums, roundtable discussions and virtual town hall meetings throughout the State.

Since February, more than 70,000 Queenslanders have collectively tackled an unprecedented threat to our future prosperity; our $80 billion debt and the $4 billion in interest, or ‘dead money’, that we pay each year.

www.StrongChoices.qld.gov.au


THANK YOU QUEENSLAND


INCREASE TAXES?REDUCE SERVICES?SALE OR LEASE OF ASSETS?

STRONG CHOICES

StrongChoices:ReduceservicesQueenslandisthemostdecentralisedStateinAustralia;itspopulationisspreadacrossanumberofvastlydifferentregions,eachwithuniqueneedsandcharacteristics.Overall,thepopulationisalsoageing;theproportionofolderQueenslandersisgrowingmorequicklythanyoungerones,andthosestillintheworkforce.

Thesedemographicchangesareleadingtodramaticincreasesindemandforgovernmentservicessuchashealthcare anddisabilityservices.

WhattheGovernmenthasalreadydoneChangeshavealreadybeenmadetothewaythepublicserviceisstructured,organisedandmanagedtomakeitmoreflexible,responsiveandefficient.TheGovernmenthasworkedhardto

tacklewasteandbureaucracy.Aspreviouslydetailed,since2012theGovernmenthasmadeanumberofdecisionstoreduceexpenditure,asoutlinedbelow:

Reductionsintheuseofcontractors,consultants,advertisingandtravel

$4.5bOver 4 YearsDepartmentalexpendituresavingsof$4.5 billion overfour years . Fiscalrepairmeasuresin2012-13werefocusedontheGovernmentscommitmenttoreducewasteandimproveefficiencythroughexpenditurerestraint

Improvingproductivitybytransitioningtobecomean“enabler”,nota“doer.”TheGovernmenthasbeenpursuingcontestabilityfortheprovisionofservicesinthehealth,communityservices,transportandtrainingsectors

LimitingtheFirstHomeOwnersGrant(nowtheGreatStartGrant)sothatitisno longer available forestablishedhomes

Furtherdepartmentalsavings of $100 million perannumfrom2014-15onwards

Divestmentsandclosureofnon-core services andaccommodation,suchasGoPrint,QFleet,SalesandDistributionServices,GovernmentNurseryandtheleaseofQueenslandGovernmentBuildings

“Housing and community services, policing and education have all experienced average annual growth rates of 8% or more. Of the $24 billion in additional recurrent expenditure in the last 10 years, 70% of the increase occurred in just five years, between 2005-06 and 2010-11.”

INDEPENDENTQUEENSLANDCOMMISSION OFAUDITINTERIMREPORT,JUNE2012

“With growth, comes growing pains. Those pains need to be addressed, infrastructure needs to be built to cater for demand, services need to be delivered and a successful business environment fostered.”

TREASURERTIMNICHOLLS,SPEECH TOTHECOMMITTEEFORTHEECONOMICDEVELOPMENTOFAUSTRALIA, FEBRUARY2014.


ImpactofservicereductionsReducingthenumberorqualityofGovernmentserviceswillalsoreducethevaluethoseservicesprovidetothecommunity.Reducingserviceswilloftenhavethegreatestimpactonthepeoplewhoneedthoseservicesthemost.

Formanyservices,itisdifficultforthemarkettoprovidealevelofservicethatmaximisesbothcommunitywellbeingandlong-termeconomicgrowth.

Wherethisisthecase,theGovernmentneedstostepinandbedirectlyorindirectlyinvolvedintheprovisionoftheseservices,suchaseducation,health,childsafety,lawandorderandpublictransport.Oftenthemajorusersoftheseservicesarethoseinthecommunitywhocouldnotaffordtoaccessaprivatelyrunservice.

ThelargestareasofGovernmentspendingareinhealth(28%)andeducation(23%).ThereweremorethanonemillionadmissionstopublichospitalsinQueenslandin2012-13.Ifa1%reductioninfundingtranslatedintoa1%reductioninactivity,thiswouldmeanthatpublichospitalscouldmanage10,000lessadmissionsinayear.

TheStrongChoices‘PeoplesBudget’ToolprovidedQueenslanderswith32optionstopaydowndebtbyreducingservicesandsubsidies.Selectingallofthesechoiceswouldhavealloweduserstoachieveadebtreductionof$33.1billionoverthethreeyearsfrom2014-15to2016-17.

Thetotalexpenditureongovernmentservicesoverthesamethree-yearperiodisprojectedtobejustover$150billion.Ifreducingserviceswasthechoiceusedtoreducedebtbythetargetofatleast$25billion,thiswouldrepresentadecreaseofaround16%inspendingontheservicesprovidedbytheGovernment.

Giventhesizeofthisreduction,itwouldresultinfewerhealth,educationandtransportservices,aswellasafurtherreductionofaround30,000publicsectorjobs.Overall,itisexpectedservicereductionsofthisscalewouldresultinQueenslandfailingtomeettheneedsofourgrowing,andageingpopulation.

Someofthemostimportantspendingchoicespresentedforreductioninthe‘People’sBudget’toolwere:

HealthReducingfundingforhealthservices(a10%cutwouldsave$4.3billionoverthreeyears)wouldleadtolessdependablehealthcareandalowerlevelofservicesforallQueenslanders.

ItwouldjeopardisetheimprovementsthattheGovernmenthasmadeinreducingwaitingtimesinareassuchassurgery,dentalworkandemergencydepartments.Acutof10%wouldresultinareductionofaround7,200healthstaff,whoareprimarilynurses,doctorsandotherhealthprofessionals.

TransportTheGovernmentprovidesover$2.5billioneachyearintransportsubsidiesandconcessions,includingalmost $1.5billioninsubsidiestopublictransportusers.

Ifsubsidieswereremoved(saving$4.5billionoverthreeyears),commutersaroundQueenslandwouldfacesignificantlyincreasedfaresforbuses,ferries,coachesandrailuse.RemovingthesesubsidieswouldcauseGoCardfarestoincreasefrom$4.14to$18.40foratwo-zonetripandfrom$4.91to$21.82forathree-zonetrip.

EducationEducationfundingrepresentsalmostaquarterofGovernmentspending,withtheDepartmentofEducation,TrainingandEmploymentemployingaboutonethirdofthetotalQueenslandpublicservicewhichincludes61,388teachers (a10%cutwouldsave$2.9billionoverthreeyears).

Asemployeeexpensesmakeupapproximately70%ofthedepartment’sexpenditure,significantbudgetcutswouldmeanfewerteachersandsupportstaffinourschools,morestudentsperteacherandlessfundingforteachingmaterialsandresources.A10%cutineducationfundingwouldbeexpectedtoresultinareductionofmorethan6,500full-timepositions.

Other Government DepartmentsAreductiontoallGovernmentdepartmentalbudgets(a10%cutwouldsave$3billionoverthreeyears)wouldcauseadecreaseinthenumberoffrontlineemployeesinareassuchaspolice,fireandemergencyservices,corrections,disabilitiesandchildsafetyaswellasareductioninfundingfornon-governmentserviceprovidersandcommunityorganisations.

IntheabsenceofGovernmentandcommunitysectorprovision,manyoftheseserviceswouldsimplyceasetoexist,increasingtheburdenonthoseQueenslanderswhocanleastaffordit.

SummaryReductionsinservices,toreducedebtbyatleast $25billionwould:

• Meanthelossof30,000publicsectorjobs,includingteachers,doctorsandnurses

• Wouldreversetheimprovementsinsurgery,emergencydepartmentwaitingtimesanddentalcareachievedbytheGovernment

• MassivelyincreaseGoCardfaresforpublictransportusers

• Resultin10,000fewerhospitaladmissionsperyear

• Seeadecreaseinthenumberofpolice,fireandemergencyservices,corrections,disabilitiesandchildsafetyemployees

• Resultinlessfundingfornon-governmentservicesprovidersandcommunityorganisations


StrongChoices:SaleorleaseofassetsTheIndependentQueenslandCommissionofAuditrecommendedthattheGovernmentevaluatewhethercontinuedinvestmentinGovernment-ownedcorporations,andtherevenuefromthemoutweighsthebenefitstotheStateofusingsaleorleaseproceedstoreducedebt.

Initsfinalreport,theQueenslandCommissionofAuditrecommended12Governmentownedcorporationsfordivestment,subjecttomarketconditions.

TheGovernmentacceptedsomeoftheserecommendations,butrejectedothers:specificallythesaleofEnergex,ErgonandPowerlinkandQueenslandInvestmentCorporation(QIC).Ithasinsteadproposedtosellsomeassets,leaseothersandintroduceprivatesectorinvestmentintheelectricitynetwork,whileretaining100%ownershipoftheordinarysharesinelectricitynetwork.(Seechart19and20forfulldetails)

ThetotalvalueoftheState’sassetsisabout$291billion.

Theassetsproposedforsale,leaseorprivatesectorinvestmentrepresentabout$33.6billiononabook-valuebasis–about11.6%oftheState’stotalassets.

INCREASE TAXES?REDUCE SERVICES?SALE OR LEASE OF ASSETS?

STRONG CHOICES

Revenue Expenditure

11.6% of total State

assets

Asset transactions

State Assets$291 Billion

Source: Budget 2014-15, Strong Choices

Chart 18: Total State Owned Assets

Chart 16: Impact of asset transactions on the State’s debt

30

40

50

60

70

80

90


$ bi

llion


Down$25 billion

Chart 17: Impact of asset transactions on the State’s interest bill

1

1.5

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4.5


$ bi

llion


Down$1.3 billion


Sector Businesses Recommendation Explanation

Electricity transmission Powerlink Privatesectorinvestment

• State retains 100% ownership of the ordinary shares• Powerlink,EnergexandErgoneachissuehybrid

securitiestoprivatesectorinvestors• Governmentcontinuestoreceivetaxandashare

ofdividends• Existingdebtofthenetworkbusinessesisreplacedwith

privatesectordebt• Stateresponsibilityforthisdebtremovedfromthe

State’sbalancesheet• Privatesectortofundfuturecapitalexpansions• Introductionofprivatesectordisciplineandefficiencies

Electricity distribution EnergexLimited Privatesectorinvestment

Electricity distribution ErgonLimited Privatesectorinvestment


Chart 19: Businesses under consideration for sale or lease

Sector Businesses Strongest choice

Ports GladstonePortsCorporationLimited Longtermlease

Ports PortofTownsvilleLimited withaggregationoftheMtIsaRailline

Longtermlease

Water distribution SunWaterIndustrialPipelines Sale

Electricity Generation Assets StanwellCorporationLimited Sale

Electricity Generation Assets CSEnergyLimited Sale

Non-core Assets of the Generation and Distribution Businesses

Therearearangeofnon-corebusinessactivities,suchascoalminesandretailelectricityfunctions

Sale

Chart 20: Businesses under consideration for private sector investment

Optionsforassettransactions

Private sector participationUnderthisoption,theStatewouldretainownershipof100%oftheordinarysharesinanasset.

Privatesectorinvestorswouldinvestinahybridinstrumentthatwouldallowparticipationinmanagementofthebusinessoperationstoassistintheimprovementofoperationalefficiencieswhileallowingthemtoreceiveashareoftheearnings.

Theexistingdebtowedbythebusinesswouldbereplacedbyprivatesectordebtandanyfutureexpansionwouldbefundedbytheprivatesector.Asaresultofprivatesectorparticipationinthehybrid,theentitydebtwouldnolongerbeconsolidatedtotheStatebalancesheet.TheGovernmentwouldcontinuetoreceiveitsshareofdividendsandtaxesfromthebusiness.

SaleUnderatraditionalsaleprocess,theassetisofferedtothemarketinamannerdeterminedbytheGovernmentbasedonindependentexpertadvice,suchasatradesaleorinitialpublicoffering.Uponcompletionofthesale,theassetorentitytransferstothenewprivatesectorownerorshareholders.

Thereisnochangetotheregulatoryfunctions,includingcontroloverpricingwhereappropriate.


WhathastheGovernmentalreadydone?Formergovernmentssoldalmost$15billioninpublicassetsinthelastfiveyearsoftheirtimeinoffice.Thisincludedthe $4billionprivatisationoftheQRNationalrailbusiness,the$2.1billionsaleofthePortofBrisbaneandthe$1.2billionsaleofretailelectricitybusinesses.

Howeverthesesaleswerenotenoughtoreducedebt,orthepressureonthebudget,becausetheywerenotusedtoreducedebt .

TheQRNationalpublicofferdocumentreleasedin2010advisedthattheStatewouldretainashareholdinginQRNationalbutthattheStatedidnotintendtoremainashareholderinthelongerterm.

Inaccordancewiththisadvicetoshareholdersin2012and2013,theincomingGovernmentreducedtheState’sshareholdinginQRNational,usingtheseproceedstopaydowndebt.TheGovernmentinheritedthisobligationbutwascommittedtoachievingthebestpossibleoutcomefromthesaleofGovernmentsharesandtheGovernment’smeasuredandmethodicalplanrepresentedsignificantgainsforQueenslandersovertheInitialPublicOfferprice.

TheQueenslandGovernmentiscommittedtorefocusingitsGovernmentownedcorporationstodrivevalueformoneyforQueenslandtaxpayers,improvingaccountabilityandenhancingefficiencyofbusinessperformance.

Inaddition,thefuturecapitalanddebtrequiredbyGovernmentownedcorporationstogrowneedstobeeffectivelymanagedsoasnottotieupvaluableandscarcecapitalthatcouldbedirectedelsewhere.Governmentownedcorporationsaredrivingefficienciesacrosstheiractivitiesandcuttingunnecessaryexpenditure.Theefficienciesbeingcapturedbythisprocesswillpositivelyimpactthecostofdeliveringservicesandthecostoflivinganddoingbusiness inQueensland.

The Government has committed to not selling any Government businesses without first seeking a mandate at the next election.

“The Government remains fully committed to seeking a mandate from the Queensland people before divesting itself of any Government business… such a proposal warrants a considered and rational debate to establish its viability and to inform stakeholders of the costs and benefits of Government owning such businesses, noting these also come with significant financial risks in the context of a modern economy.”2013–2014MID-YEARFISCALANDECONOMICREVIEW,QUEENSLANDTREASURYANDTRADE


Long term leaseTransactionsbywayoflongtermleasesallowGovernmenttoretainaninterestinthestrategicinfrastructureoftheState.Aleaseallowstheprivatesectortooperate,maintainandexpandtheassetfortheirbenefitoveraterm,oftenofupto99yearsinreturnforanupfrontpayment.

TheStateastheownerofthelandcanrecovertheassetintheeventoffailureofthelesseeandattheendoftheleasetheassetrevertstotheStateunlessthereisanextensiontothelease.Theleasetermsalsousuallyplacecertainobligations

onthelesseetoensurethattheassetskeeppacewithmarketconditions,harnessgrowthpotentialandcontinuestobeusedforthepurposeintended.

Thereisnochangetotheregulatoryenvironmentinwhichtheassetoperatesandanyexternallyregulatedpricesettingmechanismsaremaintained.Thelesseemustcontinuetocomplywithanylegislativeorleaseimposedsafetyandgovernancestandards,includingcommunityserviceobligations.


WhyGovernmentsshouldnotcontinue toownsomeassetsGovernmentsareinvolvedinpublicinfrastructuretoprovideequitableaccesstoservicesacrossthecommunityandbecausethereisarangeof‘marketfailures’thatcouldcauseinadequateprovisioniftheywerenotinvolved3 .

Queenslandoperatescommercialbusinessesprimarilyintheelectricity,water,transportandfinancialservicessectorsthatcanbedeliveredefficientlyby,andoftencompetewith,privatecommercialentities.Thesebusinessesalsocompeteforcapitalagainstneweconomicinvestmentprioritiesandcoreservicessuchashealth,educationandothersocialservices.

Oncecommerciallyfocussedbusinessesareestablishedandmaturewithappropriateregulatorystructuresorlong-termcontractsinplace,therationaleforpublicownershipbecomeslesscompellingandthecommercialrisksofthebusinessmakethecasefordivestingtotheprivatesectorstronger.

Generally,thehistoryandcultureofthepublicsectormakesitlessflexibleandlesslikelytopromoteandvalueentrepreneurialandcommercialskills,ortorespondquicklyandeffectivelytochangingmarketconditions andrisks.

Thismeansprivatesectoroperatorscanoftenmovefasterandwithmoreagilitytodealwithemergingrisksandtakeadvantageofopportunities.Privateinvestorsareoftenmoreable–andwilling–totakeonfinancialriskfortheopportunityofgreaterrewardthanthepublicsectorcanorshould,particularlyinafiscallyconstrainedenvironment.

ManyofthecommercialactivitiestheQueenslandGovernmentisinvolvedinhavealreadybeendivestedbyotherstatesandarebeingdeliveredmoreefficientlybycommercialentities.Forexample,theNewSouthWalesGovernmenthasrecentlyenteredintolong-termleasesoftheportsofKembla,BotanyandNewcastle.StatessuchasVictoriaandSouthAustraliahavealreadysoldassetsinsimilarmarkets,andtheiraveragedebtperpersonissubstantiallylowerthanQueensland.

AnalysisbyInfrastructureAustraliainDecember2013ofpubliclyownedinfrastructureassetsacrossAustraliaindicatedthattheirfinancialperformancewassubstantiallybelowtheirprivatesectorpeergroup.4

3.PublicInfrastructure–ProductivityCommissionDraftReportVolume1,March2014

4.Australia’sPublicInfrastructureUpdatePaperBalanceSheetImpactsofSelltoBuildInfrastructureAustralia,December2013

“Today, this reaction (to privatisation) is less ideological than it is reactionary.”

“There is a perception that the government will be more lenient on inefficiency. It is the opposite of big picture thinking.”

“The big picture reveals that the labour movement has nothing to fear from privatisation – unless we choose to stubbornly remain on the sidelines with our arms crossed refusing to help…”PAULHOWES,FORMERAWUNATIONALSECRETARY

“I acknowledge that privatisation is politically unpopular, yet with so many benefits to the community it should be possible to persuade voters that it is in their interest…”

Benefits of privatisation “are a more competitive generation and retail market that encourages innovation and drives efficiencies to bring down costs.”MARTINFERGUSON,FORMERRUDDANDGILLARDGOVERNMENTENERGYANDRESOURCESMINISTER,FORMERPRESIDENTOFACTU


NEWEXTERNALENVIRONMENT: ImplicationsoftheFederalBudgetDeliveredonMay2014,theFederalBudgetsignificantlyalteredthecontextinwhichtheStateGovernmentwasconsideringitsownstrongchoices.WhiletheStateGovernmentapplaudstheresponsibilityandforesightofitsFederalcounterpartinchoosingtoaddressitsownloomingdebtanddeficitproblem,manyoftheinitiativesithaschosenrelyonshiftingthefinancialburdenunfairlyto the states .

TheFederalBudgetincludedanumberofrevisionstofundingagreementsthatwereunilaterallydeterminedbytheFederalGovernment.Changingthesearrangementssodramatically–andwithoutconsultation–hasplacedconsiderablefurtherpressureontheState’sBudget.

ThemostsignificantFederalchangewasan$80billionfundingcuttoallStatesforschoolsandhospitals.ThisisamassivecostshiftbytheCommonwealth.ThenarrowrevenuebaseoftheStateswillmakeitincreasinglydifficulttofundthedeliveryofthesevitalservicesfrom2017-18onwards.

Inaddition,theFederalGovernmentunilaterallyremovedtheStateSpecificGuarantee(SSG)aspectoftheNationalHealthReformAgreement,whichwasdesignedtoensureaguaranteedlevelofadditionalfundingwouldflowtotheStateirrespectiveofgrowthinpublichospitalactivity.

Meanwhile,theintroductionofa$7co-paymentforGPvisitsanddiagnostictestsisexpectedtoputpressureontheState’spublichospitalsthroughincreasedpresentationsatEmergencyDepartments.

TheFederalBudgetalsoannouncedthattherateofgrowthineducationfundingtostateswouldreducefrom1January2018.Inthisenvironment,theQueenslandGovernmentisnotwillingtoreduceitsownfundingofschooleducation.Reducededucationfundingcouldultimatelyleadtoadecreaseintheoverallnumberofteachers,placingunduepressureonschoolsandeducationaloutcomes.

WithoutStrongandSmartChoicesthatacknowledgeandrespondtotheFederalGovernment’snewstrategy,theStateBudgetwillbeinanevenworseposition,placingfurtherpressureonareturntosurplusandourabilitytoholdasurplusintothefuture.

The State Government is particularly sensitive to the impact of tax increases imposed by the Federal Government on everyday Queenslanders. To raise State taxes and levies at this time would be a “double whammy” that would risk significant individual hardship as well as threaten Queensland’s promising growth. It is not practical to make up the difference left by Federal changes by cutting services in such vital sectors as health and education.


CHART 21: ASSESSMENT OF CHOICES OVER FORWARD ESTIMATES

Further increase taxes

Further reduce services

Sell, lease assets

StrongChoicesFeedback

STAT

E

Economicgrowth

Generalgovernmentfiscalbalance

Significantlyreducedebt

Reduceinterestexpense

BU

SIN

ESS

Competitivetaxenvironment

Increasedbusinessopportunities

Jobcreation

QU

EEN

SLAN

DER

S Accesstonewinfrastructure

Costofliving

Frontlineservices

KEY Positive Neutral Negative

TheStrongestandSmartestChoiceQueenslandershavetoldtheGovernmentthroughthe‘People’sBudget’thattheyarelesslikelytofavourreducedservicesorpayingmoretaxes.

TheGovernmenthasalreadyimplementedanumberofmeasuresaimedatrepairingtheBudget.TherearelimitedopportunitiesfortheGovernmenttoimplementfurthermeasuresthatwillhaveameaningfulimpacttothesizeoftheState’s debt .

Inaddition,theFederalBudgethasincreasedfederaltaxesanddeliveredcutsinservices.Inthisnewcontext,theStateGovernmentbelievesitmustconsiderthesaleorleaseofGovernmentownedassetstoreducetheState’sdebtandinterestbill.Thiswillenableinvestmentinnewinfrastructurelikeroads,hospitalsandschools,whilekeepingdebtatasustainableleveltobolsterQueensland’sfutureprosperity.

It is now the Strongest and Smartest Choice.


Electricity Network Assets – private sector participation Queenslandownsthreetypesofelectricityassets–thegenerators,whichproducepower,thenetworkor“polesandwires”assets,whichtransportthepower,andoneretailbusinessthatmanagesthesupplyofpowertocustomers.

Theelectricitytransmissionanddistributionbusinesses-Powerlink,EnergexandErgon-haveassetsof$29.1billionanddebtof$11.6billion.Inordertomaintainthesenetworksandcaterforfuturegrowth,theseentitiesareforecasttospend$9.8billiononcapitalexpenditure,whichwillbefinancedthroughacombinationofearningsanddebt.

TheGovernmentappointedIndependentReviewPanelonnetworkcostsfoundthatPowerlink,EnergexandErgonexperiencedoperationalinefficienciesandlackedcapitaldiscipline,whichhadcontributedtohigherelectricityprices.

TheGovernmentproposesthatitretain100%ownershipofordinarysharesinthethreenetworkbusinesses,butinviteprivatesectorparticipation.

Thiswouldinvolvetheprivatesectorfundinginfrastructureinvestmentviaahybridinstrument,inexchangeforashareintherevenuestreamsoftheseentities.TheGovernmentwouldalsoretainashareofrevenue.

Thismechanismprovedtobeapopularchoiceinthe‘Peoples’Budget’,withmorethantwothirdsofrespondentspreferringthisoutcome.

Themechanismforthisinvestmentissetoutinthediagrambelow .

• TheStateretainsownershipoftheordinarysharesofPowerlink,ErgonandEnergex

• TheprivatesectorparticipationinvestmentisusedtorepayStatedebt

• Privatesectordebtisusedtofinancefuturenetworkcapitalexpenditure

• ExistingdebtofthenetworkbusinessesisreplacedwithprivatesectordebtandStateresponsibilityforthedebtremovedfromtheStatebalancesheet

• TheGovernmentwillstillreceiveitsshareofdividendsandtaxesfromthebusinesses

• Privatesectormanagementdisciplineresultingfromtheparticipationmayresultinoperationalefficienciesandmorecompetitiveelectricitypricing

WhiletheIndependentQueenslandCommissionofAuditFinalReportrecommendedthesaleofEnergex,ErgonandPowerlink,theGovernmentconsidersthatprivateinvestmentinthesebusinessesthroughahybridinstrumentwillachievesignificantdebtreductionbenefitsfortheState,butwillenabletheStatetoretainownershipof100%oftheordinarysharesofthesebusinesses.

Commercial BanksPrivate Sector Investors

State of Queensland

Electricity Network Assets

Ownership retained

Replace QTC debt with private debtShare of earnings

Hybrid investment

100% ordinary sharesMajority economic interest

Tax paymentsShare of earnings

PowerlinkEnergex

Ergon

Chart 22


Ports – long-term lease TheGovernmentownsanumberofportsacrossQueensland,whichtransferavarietyofcargotodomesticandinternationalmarkets.TheseportsareoperatedbybothGovernmentandprivateoperators.InAustralia,includingQueensland,portshavebeensuccessfullyleasedtoprivateoperators,withtheGovernmentretainingalandlordroletoensuresafetyandsecurity.

RailfreightnetworksareoperatedunderarangeofgovernmentandprivateownershipmodelsinAustralia.Theintegrationofportsandraillinesmayimproveefficienciesandthereforelowerthecostofexportersbringingtheirproductstomarket.ThisisseenasasignificantmeanstopromoteincreasedeconomicdevelopmentinQueensland.

Basedonexpert,independentadviceandontheoutcomesofthecommunityconsultationundertakenaspartoftheStrongChoicesconsultation,theGovernmentproposestoletlong-termleasesfor:

• PortofGladstone(excludingPortofBundaberg),and

• AnintegratedsupplychaincomprisingPortofTownsville(excludingPortofLucinda)andtheMtIsaRailLine

Along-termleasewillenable:

• Governmenttoretainownershipoftheportsandrailland

• Privatesectortooperatetheportandrailline,whichwouldreverttoGovernmentonexpiryofthelease

• Theprivatesectortoberesponsibleforupgradesandmaintenance,reducingthedependenceonStatedebttofinancetheseactivities

• Asubstantialupfrontleasepremiumtobeused bytheStatefordebtreductionandnewinfrastructureinvestment

Theappropriatetimingofthesetransactions,andconsiderationofdetailedtransactionstructureswillneedtobeconsidered,andultimatecompletionofanytransactionswouldbesubjecttoarobustprocesssothattheStateachievesvalueformoney.

Privateownershipofassetscanenableaccesstoprivatesectorcapitalforexpansion,whichmaynothavebeenpossibleforGovernment’sfacingfiscalconstraints.Economicbenefitsmaybeachievedbycreatingamoreconduciveenvironmentforinvestment,whichcanprovidebetteropportunitiesforthedevelopmentofassociatedorcomplementaryprojects,forexamplearesourceprojectwithlinkstoports.

Electricity Generation – saleStanwellCorporationLimitedandCSEnergyLimitedownpowerstationsusingcoalorgastogeneratepowerthatissoldintothewholesaleNationalElectricityMarket(NEM)wherecustomersareelectricityretailerslikeOriginandAGL.

Thesecapital-intensivebusinesseshavetocompetewithotherprivateandGovernment-ownedoperators.State-ownedgenerationcompaniesaccountforapproximatelytwothirdsoftheelectricitygenerationmarketinQueensland,butmostgenerationassetsinotherpartsoftheAustralianNEMareprivatelyowned.

Basedonexpert,independentadviceandontheoutcomesofthecommunityconsultationundertakenaspartoftheStrongChoicesconsultation,theGovernmentproposesthesaleofthegenerationandcoalassetsofStanwellCorporationLimitedandCSEnergyLimited,whenmarketconditionsaresuitable

Asalewill:

• AllowupfrontproceedstobeusedfordebtreductionandnewinfrastructureinvestmentbyGovernment

• Avoidincreasesindebttofundcapitalexpenditure

• Allowaprivateownertodetermineoptimalgenerationcapacityforthefuture

• Reducegovernmentexposureandriskduetocompetitionfromnewtechnologies

• EnabletheStatebalancesheettobede-riskedfromvariabilityofreturns

• Allowthesebusinessestocompetemoreeffectivelywithotherprivatesectorcompetitorsgeneratingelectricity

• RemovetheneedfortheGovernmenttoinjectfuturefundsintothebusinessestoallowthemtooperate


Electricity Retail – saleErgonEnergyQueenslandbuyselectricityinthewholesalemarketandsellsittocustomersoutsideSouthEastQueensland.WiththerecentlyannouncedsaleofTasmania’selectricitybusiness,Queenslandwillbetheonlystatethatownsaretailelectricitybusiness.

Themainassetoftheretailbusinessisitscustomerbase.Oncurrentpolicysettings,theStatewillretainasubsidisedelectricitypriceforregionalQueenslanders.

Basedonexpertandindependentadvice,togetherwiththeoutcomesofthecommunityconsultationundertakenaspartoftheStrongChoicesconsultation,theGovernmentproposesthesaleoftheretailassetsofErgonEnergyQueensland.

ThiswillresultinupfrontproceedstobeusedfordebtreductionandwilllimitGovernmentexposuretoreducingcustomernumbersascustomerschangeretailers,de-riskingtheState’sbalancesheetfromvariabilityofreturns.

ThesaleofQueensland’sresidualretailelectricitybusinesswillenableQueenslandersinregionalareastoaccessacompetitiveretailmarket,justlikepeopleinSouthEastQueensland,meaningtheywillnolongerbetiedtoErgonEnergyfortheirpower.

Commercial water pipelines – sale or leaseTheStateownswatersupplyinfrastructureservicingcommercialandindustrialbusinessesincludingmines,powerstationsandcoalseamgasoperations.TheydonotrepresentcorebusinessfunctionsofGovernment.

DomesticusersofSunWaterpipelineswillcontinuetoaccesstheirexistingwatersupply.

Basedonexpert,independentadviceandontheoutcomesofthecommunityconsultationundertakenaspartoftheStrongChoicescampaign,theGovernmentproposesthesaleoftheindustrialwaterpipelinesofSunWaterLimited.

ThiswillresultinupfrontproceedstobeusedfordebtreductionandnewinfrastructureinvestmentbyGovernmentandde-risktheStatebalancesheetfromthevariabilityofreturns.


TheresultofStrongChoices

Improvement in the State’s debt position

New Position

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$14,000

$12,000

$16,000

$18,000

$ pe

r per

son

Bef

ore

$16,

314

Average of other states $9,628 per person

Aft

er $

11,2

93

VictoriaNew SouthWales

WesternAustralia

SouthAustralia

TasmaniaQueensland

Forecast State Debt per Capita after Strong Choices implementation 2016-17

Chart 25: State Debt $ per person 2016-17

Chart 23: Impact of asset transactions on the State’s debt

30

40

50

60

70

80

90


$ bi

llion


Down$25 billion

Chart 24: Impact of asset transactions on the State’s interest bill

1

1.5

2

2.5

3

3.5

4

4.5


$ bi

llion


Down$1.3 billion


BuildingonStrongChoices: theStrongChoicesInvestmentProgramHavingmadetheStrongestandSmartestChoicetoreducethe$80billionStatedebt,theGovernmentwillalsofreeupfundstobuildmoreschools,hospitalsandothervitalinfrastructuretoensurethisState’sgrowingpopulationcanenjoyabrighterfuture.

Thesefundsshouldbecomeavailableoverasix-yearperiod,andonlyafterthenextStateelectionwhentheGovernmentwillseekamandateforitsfinalplan.

Whilesomehavearguedthat100%ofincomefromtheproposedassettransactionsshouldbedirectedtopayingdowntheStatedebt,theGovernmentiscommittedtodeliveringtheinfrastructurerequiredtodriveeconomicgrowthinQueensland.Withadisciplinedandmethodicalplan,itaimstooptimiseprivatesectorinvolvementintheseinfrastructureprojectsandtoensureitsowninvestmentsrepresentvalueformoney.

Therefore,asoutlinedabove,theGovernmentproposestosetaside25%oftheproceedsreceivedfromthesale,leaseorotherdivestmentofitsassets,toestablishandfundtheStrongChoicesInvestmentProgram.

The Program will incorporate a range of funding pools designed to support and enhance Queensland’s four-pillar economy built on agriculture, tourism, construction and resources. It is expected to directly support approximately 25,000 full-time equivalent (FTE) jobs in the Queensland construction industry.

Onaconservativebookvaluebasis,theassetslistedforsale,longtermleaseorprivatesectorparticipationwouldprovide$33.6billiontotheState.Thisincludesdeconsolidationofthedebtheldbythenetworkbusinesses.

TheGovernmentproposestouse75%oftheproceedsor $25billionfordebtreductionand25%or$8.6billion,tocreatetheStrongChoicesInvestmentProgram.

TheamountofinfrastructurefundingmayalsoincreasedependingoneligibilityforCommonwealthfundingundertheFederalGovernment’sassetrecyclingincentives.

ThiswillreducetheState’sinterestbillfrom$4billiontoapproximately$2.7billion,freeingup$1.3billionayear.ThisChoicewouldalsoreducethepercapitainterestcostfromanestimated$855perpersonayearto$592,togetherwithreducingtheaveragedebtperpersonfrom$16,314to$11,293.

TheassettransactionswillalsomeantheStatewillnolongerhavetofundupto$15.6billioninfuturecapitalexpenditureovertheforwardestimatesdependingonthetimingoftransactions.Inthecaseofpowerstationand/orportupgrades,thiswillsavetheGovernmentbillionsofdollarsoverthemediumterm.Futurecapitalexpansionwillbeundertakenbytheprivatesectorinresponsetocustomerdemand.

TheGovernment’scommitmenttoongoingexpenditureconstraint,coupledwithagreaterrelianceonprivatesectorfundinganddeliverymodels,willensurethattheState’sdebtdoesnotagainreturntounsustainablelevels.


The Strong Choices Investment ProgramTheStrongChoicesinvestmentprogramwillbedividedinto arangeoffundingpoolsdesignedtoenhanceagrowing four-pillareconomy.

Agriculture • Rural&RegionalRoadsFund• Rural&RegionalEconomicDevelopmentFund

Tourism• LocalGovernmentCo-InvestmentFund• SouthEastQueenslandRoadsFund• Rural&RegionalEconomicDevelopmentFund• CulturalInfrastructureFund

Construction• BusandTrainProject• LocalGovernmentCo-InvestmentFund• PublicTransportRailInfrastructureFund• Rural&RegionalRoadsFund• SouthEastQueenslandRoadsFund• Rural&RegionalEconomicDevelopmentFund• CulturalInfrastructureFund• CommunityHospitalsFund

Resources • Rural&RegionalRoadsFund• Rural&RegionalEconomicDevelopmentFund

AllprojectsseekingtobeeligibleforfundingthroughtheStrongChoicesInvestmentProgramwillbesubjecttorigorousfinancialandeconomicassessment,includingcost-benefitanalysistoensureallprojectsrepresentvalueformoneyfortheQueenslandtaxpayerandcandemonstratehowtheywillliftproductivityandimproveQueensland’seconomicperformance.

Thefinalallocationoffundingforeachoftheinvestmentfundsmaychange,dependingontheoutcomesofprojectanalysisandevaluation.Theexactnumberandallocationoffundsmayalsochangeandwillbedetailedinthefinalplan,dueforreleaseinSeptember2014.

Rural & Regional Roads FundThisfundwouldhelpprovideinitialfundingforworksonStateroadsthatwillsupporteconomicgrowthinkeyareasoutsideSouthEastQueensland,subjecttotenderingtoensurepricecompetitionandvalueformoney.

South East Queensland Roads FundThisfundwouldprovideinitialfundingforworksonStateroadsintheSouthEastQueenslandcorner,subjecttocompetitivetenderingtoensurevalueformoney.

Chart 26: Strong Choices Investment Program

Fund Allocation

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

Total Package $8.6 Billion

Proposed Spending Initiatives

Future Fund (Natural Disasters)

Bus and Train Project

Local Government Co-Investment Fund

Public Transport Rail Infrastructure Fund

Rural and Regional Roads Fund

South East Queensland Roads Fund

Rural and Regional Economic Development Fund

Entrepreneurial and Innovation Fund

Future Schools Fund

Community Hospitals Fund

Cultural Infrastructure Fund

$8.6bnover 6 years


Public Transport Rail Infrastructure FundThisfundwouldbeusedtofund,inpartorinfull,publictransportrailprojectsacrossQueensland.

Bus and Train Project TheGovernmenthasidentifiedaninitialfundingallocationfortheproposed$5billionBusandTrain(BaT)project.Thisisanupfrontcapitalpaymenttoensuretheprojectcanproceed.TheprivatesectorwillbeinvitedtofundtheremainingprojectcostwiththeStatetopaytheprivatesectoranavailabilityfeeoverthelifeofthetunnel.Theprivatesectorwouldberesponsibleforthemaintenanceofthetunnel,whichwillbebuiltintotheavailabilitypayment.

Inaworld-firstdesign,theBaTprojectwillprovideacombinedrailandbustunnel,stretching5kmfromDuttonParkinthesouthtoVictoriaParkinthenorth.TheBaTprojectisasingle,double-decked,15m-widetunnelbeneaththeBrisbaneRiverandBrisbane’scentralbusinessdistrict,providingnewundergroundstationsatWoolloongabba,GeorgeStreetandRomaStreet.

TheBaTprojectwillbecriticaltoboostingBrisbane’sinner-citypublictransportcapacityandisakeynewlinkinSouthEastQueensland’spublictransportnetwork.

Thelevel,natureandtimingoftheproject’sresidualfundingrequirements,includingacontributionfromBrisbaneCityCouncil,willbeconsideredbyGovernmentaspartoftheBaTBusinessCase.Dependingonthefinaldeliveryapproach,alevelofprivatesectorfinancingwillbesoughtfortheBaTproject.

Future Schools Fund TheSchoolsPlanningCommissionhasdelivereditsinterimreporttoGovernment,detailingtheneedforupto48newschoolsbetweennowand2021.

Thefundwouldenableaprogramfornewschoolsandaprogramtodelivernewclassroomsforexistingschools.

AllnewStateschoolsbuiltwillbeindependentpublicschools.

Wherepossible,allnewStateschoolswillbebuiltaspartofthenowestablishedandsuccessfulpublic-privatepartnership(PPP)model.

Aportionofthefundswillbemadeavailabletotheindependentschoolsector.

Rural & Regional Economic Development FundThisfundwouldbeusedtosupportprojectsthatdriveeconomicgrowthanddiversificationofregionalindustriesacrossregionalQueensland.

Thefundwillfocusonmajorstrategicinfrastructureandcommunity-ledlocalinitiativesthatimproveboththecompetitivenessandlivabilityofregionalandrural

Queensland,creatingmorejobsandeconomicgrowth.

AportionofthefundsfromtheRural&RegionalEconomicDevelopmentFundformpartoftheGovernment’sRoyaltiesfortheRegionsfundfor2016-17and2017-18.

Local Government Co-Investment FundThisfundwouldbefullycontestableandsetasideexclusivelyforLocalGovernmentsacrossQueensland.

Thefundisforcapitalexpenditureandnotrecurrentexpenditure.LocalGovernmentscanapplyforco-investmenttoupgrade,renew,buildandorconstructinfrastructurethatsupportsgrowthandeconomicdevelopment.Preferencewillbegiventoprojectsthatassistinbuildingafourpillareconomy.

Thefundwillco-investwithLocalGovernmentsandseekareturnfortheinvestmentsothatthefundcanberolledovermultipletimesinfutureyears,asanongoingsourceofinvestment.

AportionofthefundsfromtheLocalGovernmentCo-InvestmentFundformpartoftheGovernment’sRoyaltiesfortheRegionsfundfor2016-17and2017-18.

Future Fund (Natural Disasters)TheGovernmentwouldput$500millionincashfromtheproceedsofassetstransactionsintoaseparateQueenslandFutureFund,withthepolicyfocusonhavingfundingsetasidefortheState’scostsintheeventoffuturenaturaldisasters.

TheQueenslandFutureFundwillinvesttheproceeds,withtheviewtogrowingthefundtobolsteringtheState’sfinancesagainstfuturechallenges.

Entrepreneurial and Innovation FundSince1998,Governmentshaveinvestedinresearchandinnovationacrossawiderangeofindustries.Overrecentyears,thisinvestmenthasdeclined,puttingatriskQueensland’sknowledge-basedindustries.Queenslandalsohasastrongandproudhistoryofentrepreneurshipwhichthisfundwillseektofosterandensurewecontinuetobeagreatstatewithgreatopportunity.

ThisfundwouldbeusedtoreinvigorateresearchandinnovationacrossQueensland,onceagainplacingQueenslandattheforefrontoftechnologicalbreakthroughs,focusingongrowingourfourpillareconomyandprovidingjobsandopportunityforallQueenslanders.

ThisfundwillhelpcreateandmaintainhighlyskilledjobsforfuturegenerationsofQueenslanders;it’saninvestmentinourfuture.


Community Hospitals FundHospitalsacrossQueensland,particularlyinruralandregionalareas,needupgradingandredevelopmenttocaterforourincreasingpopulationandgrowingdemandforhealthservices.ThisfundputsasidemoneyforthefuturehealthandhospitalinfrastructureneedsofQueensland.

Cultural Infrastructure FundThisfundwouldbeusedtorevitaliseculturalvenuesacrossQueensland .

Federal Government Incentive PoolTheCommonwealthGovernmentrecentlyannounceditwouldsupporttheStatesinassetrecyclingwhereassetsaresoldorleased,providedtheproceedsareinvested(recycled)ineconomicinfrastructure.

UndertheCommonwealth’sincentive,theStatecouldbeeligibletoreceiveupto15%oftheexpected$8.6billionputasideforinfrastructure–afurther$1.3billion.

Commonwealthfundingwillbeavailableforinfrastructurethatsupportseconomicgrowth,suchasroads,highwaysandrailwaylines,butnotforspendingon“socialinfrastructure”suchasschoolsandhospitals.BasedontheState’sproposedinfrastructurepriorities,andtheparameterssetbytheCommonwealth,thepotentialpoolofCommonwealthfundingcouldbeanextra$975million(ofthepossible$1.3billion).

TheCommonwealthhasgiventhestatesupto30June2016toagreeontheassetstobesoldandtheinfrastructuretobebuilt.TheCommonwealthhasalsogiventheStatesuntil30June2019tostarteligibleinfrastructureprojects.

Thepaymentsfromthepoolaremadeintwoparts.Thefirstpaymentismadewhenthesaleprocesshascommenced,withthesecondpaymentdeliveredwhenthecontractforthenewinfrastructurehasbeensignedorthesaleprocessiscompleted.

TheStateGovernmenthasnotincludedthisincentivepoolfundinginanyofthefundsoutlinedabove,asithaspromisedtoseekamandateforitsfinalplanatthenextelection.

Community FeedbackQueenslandersarenowinvitedtogivefeedbackonhowtheywouldlikefundsfromtheStrongChoicesInfrastructurePackagetobeallocated.Individuals,communitygroups,councilsandorganisationsalikeareencouragedtovisitwww.StrongChoices.qld.gov.auandprovidetheirfeedback.TheGovernmentwillreleaseafinalplaninSeptember2014.

SummaryThroughtheirrecordresponsetotheStrongChoicescampaign,QueenslandershavemadeitcleartheybelievedecisiveactionisnecessaryandjustifiedtoaddresstheState’sdebtandinterestproblem.

TheGovernmenthasalreadyachievedsubstantialexpenditurereductionsandrevenueincreasesaspartofitsBudgetrepairprogram.TheGovernment’sabilitytomakefurtherinroadsintheseareashasbeenseverelycurtailedbytherecentFederalBudget,whichalsoflaggedsignificantspendingcutsaswellasincreasesintaxesandlevies.TheStateGovernmentrecognisesthatmanyQueenslandersarefeelingconsiderablecostofliving

pressuresalready;inthewakeoftheFederalBudget,furthertaxrisesorspendingcutswouldrepresentasignificant“doublewhammy”forthesepeople.

Inthiscontext,theStateGovernment’sproposedassetdivestmentprogramwillreducedebt,restorestrengthtotheBudget,anddelivera“communitydividend”intheformofadditionalfundstoinvestinnewinfrastructurearoundtheState.

The Strongest Choice is now the Smartest Choice, and will build a brighter, more prosperous future for all Queenslanders.


Appendix:ConsiderationsforassettransactionsAspartofthedecisionmakingprocessandconsultationwiththepublicthroughtheStrongChoicescampaign,theGovernmenthastakenanumberofissuesintoconsideration,andwillcontinuetodoso.

Loss of revenueIftheGovernmentsellsanassetandusesthefundstorepaydebt,itcanavoidinterest.Thisreducedexpenseisusuallyoffsetbyreducedincome(egdividends)givenupwhentheassetissold.However,futureincomeisuncertainanddependentonmarketfactorsthatcaneitherenhanceorerodethevalueofthatfutureincomestream.ThemarketvalueshouldreflectthenetpresentvalueofthefutureincomestreamofthatassetandremovetheGovernmentfromcommercialmarketrisk5.Theproceedscanthenbeusedtoreducedebt,freeingupfundstoinvestinnewproductiveinfrastructurethatwilldriveeconomicgrowth.

Themajorityoftheassetsidentifiedforpotentialsaleorleasearecurrentlyreturningrevenue(dividendsandtaxequivalentpayments)toGovernment.In2012-13,theseamountedto$1.083billionor2.6%ofGeneralGovernmentrevenue.

Unliketheinterestpaymentsthatwouldbesavedbyrepayingdebt,theearningsfromthesebusinessesarenotcertain,butaresubjecttothenormalcommercialrisksassociatedwithanyprofit-makingenterprise.Theseinclude:

• Over-supply,competitionandreduceddemandintheelectricitygenerationmarketwhichhasdepressedpricesandthereforeprofitability

• ResourcesmarketconditionsandthevalueoftheAustraliandollar

• FederalRegulatorinterventionintheenergymarkettosetpricesbasedoncostefficiencies

TheIndependentQueenslandCommissionofAuditnotedthatthe1996QueenslandCommissionofAuditrecommendedtheprivatisationofanumberofGovernmentOwnedCorporations(GOCs),especiallyintheenergysector.Thepresent-dayCommissionofAuditestimatedthelossofvaluetotheGovernmentfornottakingupthatrecommendationin1996wasintheorderof$7.2billion(in2011-12dollars).

Undertheproposedmodelforprivatesectorparticipation,theStatewillcontinuetoreceiveitsshareofreturns(dividendsandtaxes)fromthesebusinesses.

Thenegotiationofalong-termleasemayalsoprovideanopportunitytotheStateforcontinuedparticipationinfutureprofitsofthelessee.

WheretheproceedsfromthesaleorleaseofaGovernmentbusinessarereinvestedinproductiveinfrastructurethatdrives

economicgrowth,theGovernmentwillbenefitfromincreasedrevenue,suchaspayrolltaxandroyalties.TheGovernmentmayalsoinvestinthenextgenerationofeconomicinfrastructurethatcangeneratefuturerevenuefortheState.

Inthelongerterm,theGovernmentconsidersthatreducingtheState’sdebt,freeingupfundstoinvestinnewinfrastructure,andtransferringbusinessriskstotheprivatesectoroutweighthepotentialimpactsonthefiscalbalanceifthelossofdividendsandTEPsisgreaterthanthereductionininterestexpense.

Inthiscontext,itisimportanttorecognisethattheGovernmenthasalreadyundertakenthestepsnecessarytobringtheState’sannualrevenueandexpenditureintobalance,withfiscalsurplusesprojectedacrosstheforwardestimatesfrom2015-16.ThiswasthefirststageofthebudgetrepairrecommendedbytheIndependentQueenslandCommissionofAudit.TheassettransactionsrepresentthesecondstageoftheCommission’sbudgetrepairmeasures,whicharefocussedonreducingdebt,whilecontinuingtoensurethatthebenefitsofthefirststageofbudgetrepairaremaintained.

5.IndependentQueenslandCommissionofAuditFinalReport,April2013

Appendix

Acrosstheforwardestimates,thesale,leaseorprivateinvestmentinGovernmentbusinesstransactionsarenotexpectedtohaveamaterialimpactontheState’sfiscalbalance,notingthattheimpactwillbeultimatelydeterminedbytheactualvaluesrealisedforsaleandleasetransactionsandthequantumofprivatesectorinvestmentinthetransmissionanddistributionbusinesses,aswellasthelevelofexpecteddividendsandinterestratesatthetimethetransactionoccurs.

Overthisperiod,itisexpectedthatthelossofdividendsandtaxequivalentspayments(TEPs)willbelargelyoffsetbythereductionininterestexpensesandthereceiptofdutyonthetransactions.


JobsThenatureandextentofemploymentinabusinessafteratransactiondependsonhowefficientlythebusinesswasbeingrunbygovernmentandthefuturegrowthpotentialofthebusiness.TherearelikelytobechangesinthecompositionoftheworkforceasaresultofthedifferingshareholderdemandsoftheGovernmentandprivatesector.

Forexample,thegovernmentmonitorsandrequiresongoingreportingofcertaintypesofexpenditurelikeentertainmentandtravel,andissuesmorefocussedontheoperationofgovernment.Aprivatesectorshareholderwillhaveadifferentfocusandmayrequireemployeeswithdifferentskills.

Furtherinvestmentandgrowthinbusinessesunderprivateownershipcancreatenewemploymentopportunities.

CommonwealthSerumLaboratories(CSLLimited),forexample,wassoldbytheCommonwealthGovernmentthroughaninitialpublicofferingin1994.Atthattime,CSLLimitedhad1300employeesinAustralia,hadsalesof$170millionandpaid$4millionintax.Todayithasover11,000employeesinAustraliaandaroundtheworld,salesofalmost$5billionandpays$300millionintax.

Pricing/competitionGovernment-ownedbusinessesincludingthoseintheelectricity,portandwaterpipelinesectorsaresubjecttothesamecompetitionandpricingarrangementsastheirprivatesectorcounterpartsunderStateandFederallegislation.Aftersaletheywillbesubjecttothesamepricingconstraintsorregulatorystructures.Forexample:

• WholesaleelectricitypricesaresetbytheAustralianEnergyMarketOperator(AEMO)everythirtyminutes,basedoncompetitivebidsfromgenerationplants

• AllelectricitynetworkbusinessesaresubjecttodetailedrevenueandpriceregulationbytheAustralianEnergyRegulator(AER).Everyfiveyears,theAERsets“allowedrevenues”andreviewstheirannualpricingproposalsforcompliancewiththeNationalElectricityRules

• TheQueenslandCompetitionAuthorityalsoplaysaroleinsettingretailelectricitypriceschargedbyErgonEnergyQueensland

• Waterpricesarenegotiatedcommerciallybeforethepipelineisbuiltandusuallysetforthelifeofthecontract

• Portsnegotiatelongtermagreements(usuallyabout10years)withtheircustomerswhoaretypicallylargeresourcecompaniesthatprovidepricingcertainty

• Anynaturalmonopoliescanbesubjecttoregulationifthereareconcernsthatmonopolypowerisbeingabused.

ThecostofelectricitysupplytoSouthEastQueenslandislowerthanthecostofsupplyinregionalQueensland,wheretherearenoequivalenteconomiesofscale.TheGovernment’suniformtariffpolicy(UTP)ensuresallQueenslandnon-marketelectricitycustomersofasimilartypepaythesamepriceforelectricity,regardlessofwheretheylive.AsthesepricesdonotreflectthefullcostofelectricitysupplyformostremoteandregionalQueenslanders,theGovernmentprovidessubsidyfundingtoErgonEnergyQueensland.In2014-15thissubsidypaymentisexpectedtototal$656million.

TheGovernment’spolicythatregionalQueenslandersshouldpayapriceforelectricitywhichisonaparwiththatpaidbytheresidentsofSouthEastQueenslandwillnotchangeasaresultofthesaleofErgonEnergyQueensland.Inaddition,theGovernmentproposestoopentheregionalelectricitymarkettocompetitiontoencourageelectricitypricecompetitionbetweenretailersforthebenefitofregionalQueenslanders.

RegulationInmattersinvolvingpricing,competition,healthandsafety,environment,employment,developmentandplanningapprovals,andservicestandards,Government-ownedbusinessesaresubjecttothesameCommonwealth,Stateandlocalregulationsastheirprivatesectorcounterparts.

Shouldtheybesoldorleasedtotheprivatesector,eachoftheGovernmentbusinesseslistedherewillbesubjecttothesameregulationsastheyarenow.PrivateownershipcanalsoremoveunnecessarypolicyrestrictionsonthesebusinessestooperateonafullycommercialbasisandmakethecostofanyGovernmentpolicyrequirementsmoretransparent.

Service StandardsTheelectricitygeneration,retailandnetworkbusinessesaresubjecttothesameservicestandardobligationsasprivatesectororganisationsunderStateandCommonwealthlaws.

TheAEMOrequiresallelectricitygeneratorstocomplywithstringenttechnicalandoperatingstandardstosupplyelectricityintheNationalElectricityMarket.Theelectricitynetworksaresubjecttoarangeofperformanceobligationstoconnectandsupplycustomerswithintheirfranchiseareas,andmustdeveloptheirnetworkinresponsetonewdevelopmentsandincreasingcustomerneeds.

TheElectricityAct1996imposesstrictobligationsonallelectricityretailbusinessesinQueensland,whetherprivateorGovernment-owned,andtheGovernmentiscurrentlyconsideringwhethernationalrulesshouldbeadoptedacrossallelectricityretailersinQueensland.


Theservicestandardsforwaterpipelinebusinessesarenegotiatedwitheachcustomerwhenthelong-termcontractisenteredintoandsetoutinthesupplyagreement.

Portsareanimportantpartoftheregionaleconomieswheretheyarelocated,anditistypicalinaleaseprocesscanincludeanobligationtoexpandtheportinresponsetoeconomicgrowthandgenuinecustomerdemand.

Planning frameworksThePortsofTownsvilleandPortofGladstonearesubjecttothestrategicplanningframeworkundertheTransportInfrastructureAct1993(Qld).Itisanticipatedthatatailoredplanningframeworkwillbeinplaceforthoseports,afterprivatisation,toensuretheongoingappropriatedevelopmentoftheportsissimilartotheregimeusedforthePortofBrisbane.

Theseplanningframeworkswillhelpensureappropriatedevelopmentonportlandandallowtheporttogrowinwaysthatwillencourageeconomicdevelopmentandprovideportusers,industry,localgovernmentsandlocalcommunitieswithtransparencyaboutfuturedevelopment.

THE STRONGEST & SMARTEST CHOICE...4 The Strongest & Smartest Choice ExecutiveSummary Queensland is...

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