COVID-19 clouds part in the sunshine state

Queensland’s budget reveals an improving state economy including upgraded revenue projections. Nonetheless, the state government is keen to continue spurring the recovery via fiscal stimulus. Queensland’s treasurer and minister for investment, Cameron Dick, discusses the latest budget measures and forecasts, while Queensland Treasury Corporation’s chief executive, Philip Noble, expands on the state’s debt funding task.

Queensland’s budget position has improved materially since the December 2020 budget update and even more since forecasts from the depths of the COVID-19 crisis. What have been the key drivers?

DICK The general government sector net operating balance has improved by A$6.1 billion (US$4.6 billion) over the four years to financial year 2024 since the 2020/21 budget.

The improvement reflects an improved revenue position from higher tax and GST [goods and services tax] grant revenue – A$5.7 billion and A$7.1 billion higher, respectively.

This more than offsets policy-support measures of A$3.2 billion from the Queensland government and other funding changes from the Commonwealth, of A$1.1 billion, as well as royalties and flows to other sectors of government, of A$750 million each, and other adjustments equalling A$900 million.

Despite the obvious improvement in state finances, the economic environment still contains many challenges. What are the key measures outlined in the Queensland budget to keep the state progressing quickly in its economic recovery?

DICK The Queensland government’s economic response and policy focus will transition from shorter-term stimulatory support to investment in policies and initiatives with a greater focus on improving the state’s productivity, competitiveness, community strength and liveability to drive ongoing private-sector growth and jobs.

A key element of the government’s efforts to drive private-sector growth and jobs is our flagship A$3.3 billion Queensland Jobs Fund, which has an enhanced focus on investment attraction and industry development.

Other key initiatives in the 2021/22 Queensland budget include targeted measures that build the state’s productive capacity through investments in infrastructure, skills and innovation. These are designed to promote economic and environmental sustainability, improve business competitiveness and ensure a responsive public sector.

The government’s A$52.2 billion capital programme over the forward estimates will help create thousands of ongoing jobs, in addition to sustaining direct construction jobs including around 46,500 in the sector in 2021/22.

The 2021/22 budget also commits A$460 million in additional funding toward targeted investments in skills, training and employment programmes to provide an enhanced focus on productivity and support for disadvantaged cohorts to improve their prospects of securing employment.

Some large sectors of the Queensland economy, such as tourism and hospitality, are likely to continue to feel the effects of closed borders and other pandemic-era health policies. What measures are needed to ensure these industries are ready to rebound when the economy fully reopens?

DICK While international borders remain closed, the government has been focused on supporting tourism and hospitality through key domestic initiatives such as the “good to go” marketing campaign and the provision of tourism vouchers to travellers in key tourism regions like Cairns, the Whitsundays, the Gold Coast and Brisbane.

The 2021/22 budget continues to support and develop the state’s tourism and events sector. Among the features in this budget are A$15 million in 2021/22 out of a A$25 million programme for investment in tourism infrastructure that supports COVID-19 recovery. We have also dedicated significant funds for the Wangetti Trail from Palm Cove to Port Douglas, a A$41.4 million joint Queensland-Australian government project that will be one of Australia’s leading ecotourism adventures.

The Queensland government continues to focus on protecting the Great Barrier Reef and Queensland’s natural environment, and the 2021/22 budget builds on the A$400 million already invested in the reef by the government since 2015. This commitment includes A$270.1 million over five years for the Queensland reef water-quality programme as well as a capital-works programme of A$55.1 million to protect and restore the state’s environment.

We are also incredibly excited that the International Olympic Committee (IOC) executive board has recommended the Brisbane 2032 candidature be put forward to election by the IOC in July 2021. This presents a significant opportunity for Queensland’s tourism industry and economy.

“The Queensland government’s economic response and policy focus will transition from shorter-term stimulatory support to investment in policies and initiatives with a greater focus on improving the state’s productivity, competitiveness, community strength and liveability.”

What assumptions does Queensland’s budget make about the COVID-19 vaccine rollout and borders reopening, and how crucial are these to realising the budget’s forecast outcomes?

DICK The Australian government is responsible for acquiring and delivering the COVID-19 vaccine to Australians. Queensland is working collaboratively with the Australian government to roll out the COVID-19 vaccination programme across Queensland.

Consistent with the 2021/22 federal-budget assumptions, the interstate border is assumed to remain mostly open across the forecasting period. While more travel bubbles may gradually be established from 2022 onwards, the international border is assumed to remain closed to most travellers through to mid-2022.

The Queensland budget makes assumptions for improvements in unemployment and gross state product, but some analysts have forecast even stronger results. How likely do you think it is that the Queensland economy outperforms expectations?

DICK The improvement in fiscal and economic factors is a result of our strong health response. While we always aim to outperform we also recognise that COVID-19 presents a constantly evolving challenge, domestically and for our trading partners around the world.

This budget indicates the state’s economic recovery is ahead of schedule and its fiscal balances are improving. If the Queensland economy continues to outperform expectations, will the impetus on paying down debt grow or will funding more stimulatory activity remain top of the agenda?

DICK The forecasts contained in our budget are based upon the best information available at the time, but clearly COVID-19 remains a dynamic challenge. Future budget decisions will be based on conditions and forecasts available at the time.

QTC’s 2021/22 funding task is lower than was forecast in December. Does this alter the debt-market strategy, and if so how?

NOBLE QTC’s 2021/22 borrowing programme saw a reduction of A$5.2 billion for the financial year and A$2.3 billion for 2022/23 from December’s forecast. QTC apportioned pre-funding – due to lower client borrowing in 2020/21 – across the financial year 2022 and 2023 borrowing requirements.

QTC does not foresee a material change to how it has been operating. We will continue to take a programmatic approach to issuance including syndication, tenders and reverse enquiry. The majority of our programme will be funded via public issuance.

Smoothing and extending our maturity profile to reduce refinancing risk remains a priority, while QTC will also continue to issue other term debt, complementary to benchmark bonds, providing flexibility in both tenor and type.

QTC indicated it will seek to establish a new green-bond line this financial year. Can investors expect one new green bond per year and what can QTC share around development of its green-bond eligible-asset pool?

NOBLE QTC expects to remain a regular issuer of green bonds, subject to market conditions, as they are an important part of our diversified funding strategy. While we do not have a target of issuing a new green-bond line annually, increasing QTC’s eligible-asset pool allows us to be more active. This includes issuing new bonds and increasing existing lines.

Recently, QTC expanded its eligible-asset pool through the inclusion of Seqwater’s drought-resilient network, which has been developed in response to ongoing and significant drought. This addition increases our scope for future issuance – there is now more than A$10 billion of unused capacity in the pool – as well as providing sector-allocation diversity.

QTC has been actively developing the ultra-long end of the Australian dollar curve for several years. How does the agency see this demand segment developing in an environment of potentially rising interest rates over the coming years?

NOBLE Demand for these bonds continues to be concentrated among a small group of primarily offshore investors that are sensitive to outright yield targets. We expect this will drive demand in the event of potentially rising yields. However, relative value of semi-government bonds to other sovereign bonds – domestic and global – also affects demand.

The ability to supply the market is also important. Our clients have sensitivities to movement in outright rates, which may influence the supply aspect of the ultra-long end if rates were to rise substantially.