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States to haul back billions in deficits as economy improves

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An improved economy was likely to wipe between $20 billion and $30 billion from the deficits of the states over the next two years, according to Adept Economics.

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Economist Gene Tunny said the lower deficits were based on an improved economy which has lifted tax income, better commodity royalties and delays in infrastructure spending.

He said the states’ Budgets would show improvements of between $9 billion and $11 billion in 2021-22 and between $13 billion and $18 billion in 2022-23.

If the government-owned corporations were included the improvements would add up to $30 billion, he said.

The benefit from this was that the states were less likely to require as much debt at a time when interest rates for government-issued debt were soaring.

The amount of debt issued by the states was expected to reduce in 2023 from $84 billion to somewhere between $61 billion and $66 billion.

“While NSW and Queensland have to spend several billion dollars in flood clean-up, costs, the budgetary impact is largely offset by the Commonwealth paying up to 75 per centof the costs under the Disaster Recovery Funding Arrangements,” Tunny said.

He said the states could be accused of excessive pessimism in their Budget forecasts.

“Excessive pessimism in economic forecasts has real consequences for the states’ cost of capital and for taxpayers. The interest rate spread the states pay on their debt above the Commonwealth yield curve has consistently jumped following excessively negative budget forecasts in 2020-21 and 2021-22, which have thereafter been very substantially revised down,” Tunny said.

 

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