“Victoria may have earned the reputation as Australia’s most fiscally reckless state, but Queensland and South Australia are now mounting a serious challenge for the title,” said Adam Creighton, Chief Economist at the Institute of Public Affairs.
New IPA analysis of state and federal government budget documents reveals a dramatic deterioration in state finances over the decade to 2030, with soaring debt and interest costs increasingly consuming the taxes states raise themselves. The analysis finds:
• South Australia is on track to have the most precarious interest burden of any state by 2030, when interest payments will consume 33.4 per cent – one dollar in every three – of its own taxation revenue.
• Victoria will spend 23.6 per cent of its own taxation revenue on interest by 2030, while Queensland will spend 21.4 per cent, compared with 18.2 per cent in New South Wales.
• Queensland’s net debt is forecast to explode almost seven-fold, from $14 billion in 2020 to $98 billion in 2030 – an increase of 598 per cent.
• South Australia’s net debt is forecast to rise from $11 billion to $41 billion over the same period, an increase of 288 per cent.
• By 2030, net debt per person is forecast to reach $26,160 in Victoria, $20,544 in South Australia and $16,294 in Queensland, compared with $16,088 in New South Wales.
Figure 4: Annual interest costs as a share of State’s own taxation
Note: Commonwealth series is gross interest expenditure as a share of taxation revenue.
The IPA analysis finds the six states’ combined net debt is forecast to rise from $112 billion in 2020 to $524 billion in 2030, an increase of $412 billion, or 369 per cent according to the latest budget forecasts.
“State governments have been overwhelmingly responsible for the increase in public debt since the Covid pandemic, increasing their combined net debt by $270 billion – more than four times as much as the federal government– over the last six years,” Mr Creighton said. States’ share of total net debt across both levels of government has steadily risen to 68 per cent this year, quadruple the share in 2016.
Table 1: States’ Burgeoning Net Debt
The deterioration comes before the full impact of the $226 billion Covid debt refinancing cliff, when exceptionally cheap debt issued during the pandemic begins maturing from 2030.
At current long-term borrowing rates, refinancing this debt after 2030 would ultimately add approximately $8.1 billion a year to state interest bills, a 24% jump from the budgeted 2030 level.
“South Australia’s interest bill is already forecast to approach $3 billion by 2030 – around twice what it is budgeted to spend on its entire police force – and that is before most of the cheap Covid debt is refinanced at substantially higher rates,” said Mr Creighton.
Table 2: Estimated cumulative cost of refinancing cheap Covid debt
“Victoria has been a fiscal shocker, but it increasingly has company. South Australia is poised to overtake it on some measures of fiscal vulnerability, while Queensland’s extraordinary borrowing binge means it is catching up rapidly.”
“Without serious fiscal reform, ever larger shares of state taxes will be diverted away from police, hospitals, schools and infrastructure simply to service yesterday’s spending.”
Read the full report here.
