Every state and territory treasurer in the country is staring down a debt bomb, and when it blows, it’s services that will take the hit.
It’s not Treasurer Jim Chalmers who has a budget deficit and booming debt crisis, his state counterparts are also having money problems. And it’s expected that state-provided services are set to be cut, all except one, which luckily has a ‘get out of debt’ card, like Chalmers, namely miners’ money.
AMP’s Shane Oliver last week reported that “monthly budget data to May shows the Federal budget deficit is continuing to come in way less than expected – at $10.9bn for the first 11 months of the 2025-26 financial year compared to the $18.5bn that Treasury was expecting for the same period.”
This wasn’t great budgeting by Jim but higher commodity prices from the likes of iron ore, copper, etc which gave him more tax revenue. “The June numbers won’t be so good, but the 2025-26 deficit looks to be on track for around $15bn, well below the May Budget forecast of $28.3bn, “ Oliver added. “The better revenue numbers will likely also flow through to lower starting point deficits in future years, but the key is that the Government bank the windfall as spending it will only inflame inflationary pressures.”
WA being a big mining state is also getting big windfall gains, thanks to its mining sector.
Today the SMH explains why this out-of-control debt blowout will hit state services. “Data compiled by ratings agency S&P Global show the interest on state debt is so large and growing so fast that premiers and state treasurers will have to make politically difficult trade-offs that could hit services or infrastructure,” wrote Shane Wright.
So, why have our state treasurers got a problem with debt? Here are a few reasons:
- Hangover debt from pandemic-era spending.
- A collapse in revenue from a slowing economy.
- The same higher interest rates that are hurting economic growth are blowing out the interest bill on debt for our states.
- The cost of major infrastructure projects have come in way greater than forecast.
- Political spending to win elections.
So, just how bad is the debt surge?
Here’s Wright again: “Ahead of COVID lockdowns, all states and territories had relatively small levels of gross debt, amounting to about $270 billion compared to the federal government’s $542 billion.”
Then WA was the biggest debt state at $51 billion but mining was in a hole then.
Here are some of the states with their exposed debt problems:
- NSW’s debt is forecast to grow by 331% between 2019 and 2030, reaching almost $273 billion and interest costs by the end of the decade are tipped to hit $11 billion.
- Victoria’s debt level is on track to soar by 427% to almost $291 billion in 2030, the interest bill for which will swallow almost $12 billion or 9.4% of its total outlays.
- Tasmania is the worst state for debt blowout, where the jump will be 552% by 2030.
The likes of Queensland, which faces big outlays for the 2032 Olympics has a debt problem now that’s bound to get worse, considering how unreliable building costs forecasts are nowadays. Its debt is tipped to be $216.5 billion by 2030.
Wright revealed the total blowout this way: “Overall state and territory debt is forecast to climb by 261 per cent between 2019 and 2030, from $270.5 billion to $976.9 billion.”
For optimists, the best hope we have is that a mining boom continues and interest rates fall, and a good global economic growth phase follows the end of the Iran war.
But then there are doubts whether the peace plan will hold.
Without the best scenarios prevailing, state governments will win elections first and then start cutting services. You can count on that!
how much longer can States keep on gomg further into debt?
surely there must be a day of reckoning
Bernie Treston