In Queensland we go to the polls on the 31st of October. The Labor government has the advantage that all state governments have during this pandemic (let’s exclude Victoria for the moment) with daily press conferences and a press that really isn’t interested in anything but Covid19 news.
In normal times we would be discussing economic management (my personal benchmark), unemployment, the performance of our hospitals and schools and the vision and plans the major parties have for this next term.
Unfortunately, these are not normal times and we don’t even have a budget to hold anyone to account to, so both parties seem to be happy to promise big spending agenda’s.
We do know before we went into this Pandemic that the Queensland deficit was $90 billion and we unfortunately had one of the highest unemployment rates in the country at 5.7% (ABS Labor Force Feb 2020 ). Australia’s average was 5.1%. The only higher unemployment rate in the country was South Australia at 5.8%.
All states have been running deficits since Covid19 hit and unemployment has definitely risen with the very important Queensland international and national travel industries almost shut down.
The Queensland unemployment rate is 7.7% and is now the worst in Australia – even worse than Victoria at 6.7%. The national unemployment rate is 6.9%.
That budget deficit is now a lot worse but we are not sure by how much and does it matter?
It does matter.
State debt limits what you can do in the future. There is no magic pudding and what we accrue now will have to be repaid to our creditors. The normal interest impact to expenditure is not as bad as normal, with very depressed rates, but that won’t always be the case.
Debt that creates revenue can be good but debt that is being used to pay the largest state public service payroll in Australia other than NSW can be a concern. (Qld Ps Wages bill up by $500m )
Queensland is a business and in business you can borrow to expand but you shouldn’t borrow to pay your payroll.
Queenslanders have now been seeing a lot more of how poor our infrastructure is as we are travelling more by road.
The Pacific highway is great once you get into NSW but north of Gympie or west of Ipswich you can’t get very excited.
Our population has grown quite dramatically over the last twenty years and the question is, has our infrastructure investment in things like dams, railways, hospitals, schools and roads kept up? Over the last ten years to December 2019, we have added over 570,000 residents or an additional 12.9%. That is just ten years. (Qld Population growth).
It is likely that without Covid19, the Queensland State Government would be under pressure but the handling of the pandemic has really been the keel they have rested their campaign on. By all accounts Jeannette Young has saved us as we have followed her advice and tried to eradicate the virus. The alternative view, which is the actual medical advice as provided by our national medical team, is that closing international borders was the only thing we needed to do. We are an island so managing the small initial exposure and locking down hotspots, then managing anyone who comes back into the country is a simple and successful strategy.
The concern with our response is that Covid19 is dangerous to a very small percentage of the population but the economic and social damage will affect us all.
That argument has gone and we now have to deal with the result.
Queensland Labor are likely to retain government based on this strategy and therefore it was a good one for them.
The Race to the Whitehouse
Across the Pacific we have the inverse result. Prior to the pandemic, the Trump administration was probably going to coast to a second four years on a great economic result, improved employment numbers, withdrawal from conflicts and surprisingly good foreign policy results.
We are barely talking about North Korea any more (though still an issue) and the recognition of Israel by United Arab Emirates and Bahrain has very positive implications for hostilities in the Middle East in the medium term. Egypt was the first in 1979 and then Jordan in 1994, but nothing since.
The administration’s handling of the pandemic gave their opponents the leverage they needed and they have exploited that mercilessly.
The credit for the Middle East should not all go to the Trump administration but responsibility for the handling of the pandemic should arguably also be spread to the state administrations as well.
Polls are describing a Democrat win and next Wednesday (in Oz) we will know if they are correct. Many will be glued to this result but…. a lot of us will be watching State of Origin 1.
The reality of both these results in the immediate term is that whoever gets in will continue to prime the economy with huge amounts of borrowing and spending. As a fiscal conservative and a small government fan, I can’t get excited about it, but it is what it is.
Our analysts also think this will be reflected in share markets. There may be some turmoil, especially in the US, if it is a close result. Markets do not like uncertainty but when the dust settles it will be about fiscal stimulus no matter who wins.
This will very likely be good for the share market. Employment numbers will improve, consumption will be solid and the domestic economy should, at least for the near term look healthy.
Yes there are geopolitical issues for the US which have deeper ramifications and closer to home, reigning in excesses will be deferred.
These will bite with the need to increase taxation revenue to pay down debt and fund government spending.
Will we see these impacts in the next twelve months? Probably not in the 21_22 budget or even the 22_23.
There will be a reckoning but in the meantime investment markets may well benefit from the largesse.
We will know a lot more next week, after Queensland beats New South Wales in a surprise upset – see, always an optimist!
Enjoy your well-watered weekend.