State of the States

state of the states

Overview of State budgets

1Figure 1 indicates the fiscal position of the States[1] as a whole in 2011−12 has changed little since 2010−11. The aggregate operating balance remained in surplus, declining $655 million to $1.4 billion, because of small increases in the operating deficit of Queensland, South Australia and Tasmania. Net investment in State infrastructure fell by $2.8 billion from 2010−11 to $14.7 billion.

2Total net borrowing fell in 2011−12 because the drop in investment exceeded the increase in net operating expenses.

Figure 1Budget aggregates, 2000−01 to 2011−12

Source:ABS Government Finance Statistics and State provided data.

3Growth in aggregate State operating revenue and operating expenses has risen following a noticeable slowdown in 2010−11. State operating revenue grew by 5.3%, compared with 3.0% in 2010−11. Growth in State operating expenses was 5.6%, again above the 2010−11 growth of 3.7%.

4Growth in State royalty revenue of 4.6% was considerably lower than the 50.2% growth in 2010−11. However, other State ownsource revenue and revenue from the Commonwealth (including GST revenue) both grew slightly faster in 2011−12 than the previous year.[2]

Figure 2Average annual growth in State revenue by source, 2002−03 to 2011−12

Note:Other Commonwealth payments include specific purpose, national partnership and national competition payments.

Source:ABS Government Finance Statistics and State provided data.

5Figure 2 compares revenue growth in 2011−12 with the average annual growth over the previous ten years. It highlights:

The rapid fall in the growth of mining royalties in 2011−12. Royalty revenue grew by 4.6% in 2011−12, which was more than 4 times less than the 23.7% average annual growth over the years 2006−07 to 2010−11. Despite this fall, the importance of mining royalties as a source of State revenue grew — they were 8% of total State revenue in 2011−12, compared with an average of 6.4% over the years 2006−07 to 2010−11.
The slowdown in the growth of GST revenue available to States in 2011−12. GST revenue grew by only 0.3% in 2011−12, which was much lower than the 3.8% average annual growth over the years 2006−07 to 2010−11. This is due mainly to weaker consumption and dwelling investment in the aftermath of the global financial crisis.
The slowdown in the growth of Commonwealth payments to States. Commonwealth payments grew by only 3.0% in 2011−12. This was much lower than the 14.4% average annual increase in 2006−07 to 2010−11 (which was driven by the 27.4% and 30.5% increases in 2008−09 and 2009−10 respectively).

6Data for individual States indicate mining revenue grew rapidly from 2009−10 to 2010−11 and the vast bulk of that growth was in Western Australia. Western Australia’s royalties per capita rose by 60.3% (or $844 per capita) in 2010−11 compared with 31.7% (or $146percapita) in Queensland and 21.0% (or $20 per capita) in all other States. Growth slowed markedly in 2011−12, but per capita revenue in Western Australia remain much higher than those in other States (see Figure 3). Western Australia collected $2235 per capita in mining royalties[3], over 3 times more than Queensland ($613 per capita) and 18 times more than the other 6 States collectively ($122 per capita).

Figure 3Ownsource revenue per capita, 2006−07 to 2011−12

Source:ABS Government Finance Statistics and State provided data.

7Figure 3 also indicates the growth in mining royalties carried through to total ownsource revenue, particularly in Western Australia. Western Australia’s total ownsource revenue per capita was above the average of the other States in each of the last six years. The slowdown in the growth of mining revenue in 2011−12 reduced the disparity between Western Australia and Queensland (the State that generally has the second highest revenue).

8The strength of Western Australia’s mining industry has spread to some other parts of its economy. Its payroll tax revenue per capita is above that of Queensland and the other six States and growing more rapidly.

9The property market, however, had a moderating effect on Western Australia’s revenue growth. Its per capita revenue from conveyances was about 50% higher than Queensland’s and the average of the other six States in 2007−08, but it collapsed to around average levels in 2008−09. In 2011−12, Western Australia’s revenue grew faster than all other States and is again slightly above that in all other States.

10Queensland, the other State widely considered to have benefitted from the mining boom, has had a somewhat different experience. Its per capita ownsource revenue grew noticeably in 2008−09, primarily because large increases in the value of coal production produced a big increase in royalty revenue and its interest earnings recovered after a big fall in 2007−08.[4] Those events more than offset the 2008−09 fall in its conveyance revenue. Queensland’s total own−source revenue per capita fell in 2009−10 because of falls in its mining and payroll tax revenues. Its total per capita own−source revenue grew by 9.0% in 2010−11, but the growth in mining and conveyance revenues was constrained by the natural disasters of early 2011. Queensland’s total ownsource revenue continued to grow in 2011−12 (up 15.9%) due primarily to growth in payroll tax revenues.

11Western Australia’s total revenue per capita has exceeded Queensland’s and the average of the other six States in every year since 2005−06 (see Figure 4). It was $417percapita above Queensland and $1 575 (or 18%) above the average of the other six States in 2011−12. This situation has persisted even though increases in Western Australia’s capacity to raise its ownsource revenue have reduced its GST revenue every year since 2007−08.

12Figure 5 shows per capita expenses in the large, sparsely settled but fast growing States of Queensland and Western Australia have been about 13% above the average of the other six States since 2006−07. Per capita operating expenses in Queensland and the other six States in 2011−12 were only slightly higher than those in 2010−11. However, they increased by over $781 (or 8.2%) in Western Australia, due to well above average increases in spending on hospitals, health services and housing and welfare services.

Figure 4Total operating revenue, per capita 2006−07 to 2011−12

Note:Includes all ownsource revenue, GST revenue and other Commonwealth payments.

Source:ABS Government Finance Statistics and State provided data.

Figure 5Total operating expenses per capita, 2006−07 to 2011−12

Source:ABS Government Finance Statistics and State provided data.

13Growth in State investment is summarised in Figure 6. Investment per capita increased rapidly in all States up to 2009−10. Queensland’s investment per capita exceeded that in Western Australia and the gap widened each year up to 2009−10.[5] However, Queensland’s investment has been falling since 2009−10, while Western Australia’s rose in 2011−12. Average per capita investment in the other six States was below that in Queensland and Western Australia, and increased more slowly up to 2009−10.[6] The higher investment in Queensland and Western Australia, in part, reflects their above average population growth.

14The increases in State investment in 2008−09 and the even larger increases in 2009−10 arose because the States began spending funds paid to them by the Commonwealth under its Building the Education Revolution, Nation Building – Roads, Rail and Social Housing programs. The total amounts paid to the States under those 3 programs were $16.3billion in 2009−10, $8.3 billion in 2010−11 and $4.6 billion in 2011−12. In 2011−12 Commonwealth funds for infrastructure fell leading to reduced investment spending in all States except Western Australia and the ACT. These States are now funding a greater proportion of Investment from their own sources.

15Figure 7 shows Queensland became a substantial net borrower in 2007−08 as a result of a fall in its operating revenues and a substantial increase in its investment spending. Western Australia and the other six States (on average) moved to that position a year later. Queensland’s strong ownsource revenue growth in 2011−12 and a small reduction in its investment allowed it to reduce its net borrowing in that year. For Western Australia, the large increase in investment, primarily directed to the development of ports, schools and roads has resulted in increased net borrowing in 2011−12 despite the slight increase in its ownsource revenue.

Figure 6State investment per capita, 2006−07 to 2011−12

Source:ABS Government Finance Statistics and State provided data.

Figure 7State net lending per capita, 2006−07 to 2011−12

Source:ABS Government Finance Statistics and State provided data.

State circumstances and the GST distribution

16The GST distribution recommended by the commission reflects differences in State demographic, economic and physical circumstances. Consequently, the year to year changes in the GST distribution reflect changes in those circumstances. The changes in the GST distribution in recent years, shown in Figure 8, were driven by:

the large changes in the revenue bases for mining royalties and stamp duty on conveyances, which underlie the changes in those revenues noted in Figure 3
changes in the interstate distribution of Commonwealth SPPs and NPPs to the States.

Figure 8Assessed GST requirements per capita, difference from the average

Note:The assessed GST requirements are the amounts each State would have required to equalise its fiscal capacity in that year, based on data for that year only. The assessed GST requirements differ from the GST revenue actually received in each year.

Source:Commission calculation.

17Figure 9 shows the difference between the per capita mining royalties States would collect if they applied the average rate (called assessed revenue) and the average per capita collections. That difference has increased in recent years, especially for Western Australia. The changes in 2011−12 are the primary reason for the changes in the GST distribution recommended by the commission in the 2013 Update. Their effects on the GST distribution were partially offset by the convergence towards the average in the revenue States would collect if property conveyances were taxed at the average rate, as shown in Figure 10.

Figure 9Assessed mining royalties per capita, difference from the average

Source:Commission calculation.

Figure 10Assessed stamp duties on conveyances, difference from the average

Source:Commission calculation.

18For some States, such as South Australia, the increase in the Commonwealth SPPs and NPPs received in 2011−12, shown in Figure 11, had a significant effect on the GST distribution recommended for them in the 2013 Update.

Figure 11Commonwealth SPPs and NPPs per capita, difference from the average

Source:ABS Government Finance Statistics.

financial, demographic and economic indicators for each State

19The following presents information for each State.

NEW SOUTH WALES

20Between 2007−08 and 2011−12, New South Wales experienced below average economic growth (as measured by growth in Gross State Product (GSP)).It also had below average annual revenue and expense growth over those years. Its GST share has grown faster than average, partly because of the below average growth in its revenue bases.

21Table 1showsthat the State’s investment was below average in the five years to June2012. This was because of below average growth each year except for 2010−11. It has had deteriorating net lending and net debt positions on average since 2007−08. However, its net lending position improved in 2011−12 because of reduced investment.

22New South Wales has been a net borrower in every year because of the size of its investment program (the 2008−09 operating deficit also contributed in that year).This increased its net debt in each year up to 2009−10. While net debt fell in 2010−11, due to an increase in cash holdings following the sale of certain electricity undertakings, it rose considerably in 2011−12. This was caused by large revaluations of superannuation assets.

Table 1Financial indicators, New South Wales

Average annual
rate of growth
2007-08 / 2008-09 / 2009-10 / 2010-11 / 2011-12 / NSW / Aust
$m / $m / $m / $m / $m / % / %
Expense / 48 902 / 53 530 / 58 897 / 59 177 / 61 890 / 6.1 / 7.4
Revenue / 26 883 / 27 874 / 29 637 / 31 834 / 32 990 / 5.3 / 7.2
GST / 11 916 / 11 844 / 13 330 / 14 158 / 14 232 / 4.5 / 2.1
SPPs/NPPs / 10 487 / 13 382 / 16 994 / 14 522 / 15 348 / 10.0 / 11.6
Net operating balance / 384 / -430 / 1 065 / 1 337 / 680
Investment / 1 931 / 2 378 / 3 672 / 4 250 / 2 704 / 8.8 / 15.3
Net lending / -1 547 / -2 808 / -2 607 / -2 913 / -2 024
Net debt / 4 432 / 8 022 / 9 225 / 7 766 / 14 127

Source:ABS Government Finance Statistics for 2007–08 to 2010–11; State provided data for 2011–12.

Drivers of expenses

23The average annual growth in New South Wales State Government expenses was below the national average.This partly reflected below average growth in spending on health, education, welfare, justice and transport services.

24Table 2 shows the average annual growth rates for New South Wales forseveral demographic indicators and public sector average weekly earnings for the period 2007−08to 2011−12. Its population growth was below the average.New South Wales, along with Victoria and Tasmania,werethe only Stateswhose population in remote areas,where the per capita costs of delivering services are generally higher, fell in each year.

25Other things being equal, the below average population growth would result in below average growth in demand for government services, which partly explains its below average growth in expenses and investment.The below average growth in wages also contributes to that outcome.

Table 2Demographic and expense indicators, New South Wales

Average annual
rate of growth
2007-08 / 2008-09 / 2009-10 / 2010-11 / 2011-12 / NSW / Aust
No. / No. / No. / No. / No. / % / %
Population / 6 864 255 / 6 983 452 / 7 085 785 / 7 168 883 / 7 247 669 / 1.4 / 1.8
Population 5 to 14 / 880 365 / 880 303 / 881 726 / 887 086 / 887 086 / 0.3 / 0.5
Population 65 and above / 953 452 / 980 715 / 1 011 707 / 1 044 323 / 1 044 323 / 3.1 / 3.2
Indigenous population / 205 359 / 206 594 / 207 572 / 208 364 / 208 364 / 0.5 / 1.2
Population in capital cities / 3 897 214 / 3 971 616 / 4 040 397 / 4 087 551 / 4 087 551 / 1.6 / 1.7
Population in remote areas / 79 644 / 79 233 / 78 723 / 78 092 / 78 092 / -0.7 / 1.5
Public sector AWE ($) / 1 081 / 1 111 / 1 170 / 1 216 / 1 226 / 3.2 / 4.1

Note: Total State population is Estimated Resident Population (ERP) as at 31 December, in the middle of each financial year. Disaggregated State population data are based on disaggregated ERP as at 30June, the end of each financial year.Average growth rates cover only the years for which data are available. Data from the penultimate year is used for population 5 to 14 through to population in remote areas for 2011−12.

Source:ABS, Population by Age and Sex, Australian States and Territories, Cat No 3201.0, Jun 2010; ABS, Experimental Estimates and Projections, Aboriginal and Torres Strait Islander Australians, Cat No 3238.0, Sep 2010; and ABS, Average Weekly Earnings, Cat No 6302.0, Aug 2011.

Drivers of revenues

26The average annual growth in ownsource revenue in New South Wales from 2007−08 to 2011−12 was below the national average, reflecting its lower economic growth. This included a below average annual growth in compensation of employees and people employed.

27The average annual growth in the value of mining production in New South Wales was below the national average rate, principally due to the fall in coal prices in 2009−10 and below average growth each year since then.

28The performance of the real estate market in New South Wales has been mixed.Annual growth in the total value of market activity was above average in each of the last four years. However, growth in median house prices has been below average in four of the last five years.

29New vehicle sales grew at an above average rate because of above average growth each year since 2008−09.

Table 3Economic indicators, New South Wales

Average annual
rate of growth
2007-08 / 2008-09 / 2009-10 / 2010-11 / 2011-12 / NSW / Aust
% / %
Gross State Product ($m) / 374 816 / 391 662 / 409 199 / 435 547 / 455 275 / 5.0 / 5.8
Comp'n of employees ($m) / 195 090 / 196 896 / 203 720 / 216 542 / 230 026 / 4.2 / 5.4
Total employed persons ('000) / 3 457 / 3 456 / 3 501 / 3 575 / 3 607 / 1.1 / 1.4
Med'n house prices ($000) / 540 / 468 / 595 / 620 / 527 / -0.6 / 1.4
Value of conveyances ($m) / 104 899 / 85 593 / 107 419 / 106 667 / 102 832 / -0.5 / -4.7
Mining value of prod'n ($m) / 13 811 / 22 457 / 16 442 / 20 007 / 21 688 / 11.9 / 14.9
Capital expenditure ($m) / 86 570 / 87 120 / 91 634 / 94 614 / 94 385 / 2.2 / 5.0
Sales of new vehicles ('000) / 324 / 281 / 309 / 311 / 329 / 0.4 / -0.2

Source:ABS, National Accounts, State Accounts 2011−12, Cat No 5220.0; ABS, Labour Force, Australia, Cat No 6202.0, Dec 2012; ABS, House Price Indexes, Cat No 6416.0, Sep 2012; Conveyance data were provided by States; Mining data from ABS, Australian Industry, 2010−11, Cat No 8155.0, 2011−12, except data for 2011−12 were provided by States; ABS, Sales of New Motor Vehicles, Australia, Cat No 9314.0, Dec 2012.

VICTORIA

30Between 2007−08 and 2011−12, Victoria experienced below average annual economic growth (as measured by growth in total GSP).It had just below average annual growth in expenses over those years and below average growth in ownsource revenue.Its GST share has grown faster than average.

31Budget developments over recent years in Victoria are shown in Table 4.It achieved a net operating surplus in each of the last five years—only Victoria, Western Australia and the Northern Territory had this outcome.The surplus fell considerably in 2008−09, but has improved somewhat since 2009−10.High levels of investment in the last three years increased the State’s net borrowing and net debt.

Drivers of expenses

32The average annual growth in Victorian Government expenses was just below average — it was below average in all years except in 2009−10 when it was the highest of all States.The large increases in investment were aimed at stimulating the economy and increasing health, education and transport infrastructure.

33Table 5 shows that the average annual growth in Victoria’s total population was about the same as the national average.However, its population aged 65 years and over and Indigenous population grew at below average rates, and its population in remote areas declined.Its capital city population and population aged 5 to 14 years grew at about average rates.Growth in public sector average weekly earnings was above the national average.

Table 4Financial indicators, Victoria

Average annual
rate of growth
2007-08 / 2008-09 / 2009-10 / 2010-11 / 2011-12 / Vic / Aust
$m / $m / $m / $m / $m / % / %
Expense / 35 858 / 39 023 / 43 935 / 45 510 / 47 311 / 7.2 / 7.4
Revenue / 20 240 / 20 571 / 21 991 / 23 735 / 25 411 / 5.9 / 7.2
GST / 9 249 / 9 315 / 10 047 / 10 736 / 10 341 / 2.8 / 2.1
SPPs/NPPs / 7 853 / 9 397 / 12 548 / 11 556 / 12 130 / 11.5 / 11.6
Net operating balance / 1 484 / 260 / 651 / 517 / 571
Investment / 998 / 1 857 / 3 144 / 2 822 / 2 282 / 23.0 / 15.3
Net lending / 486 / -1 597 / -2 493 / -2 305 / -1 710
Net debt / 2 182 / 5 331 / 7 932 / 11 885 / 15 237

Source:ABS Government Finance Statistics for 2007–08 to 2010–11; State provided data for 2011–12.

Table 5Demographic and expense indicators, Victoria

Average annual
rate of growth
2007-08 / 2008-09 / 2009-10 / 2010-11 / 2011-12 / Vic / Aust
No. / No. / No. / No. / No. / % / %
Population / 5 182 076 / 5 299 204 / 5 409 157 / 5 490 010 / 5 574 455 / 1.8 / 1.8
Population 5 to 14 / 647 877 / 650 186 / 651 551 / 657 937 / 657 937 / 0.5 / 0.5
Population 65 and above / 708 692 / 729 013 / 751 435 / 774 919 / 774 919 / 3.0 / 3.2
Indigenous population / 46 164 / 46 711 / 47 039 / 47 327 / 47 327 / 0.8 / 1.2
Population in capital cities / 3 619 669 / 3 701 551 / 3 762 468 / 3 802 341 / 3 802 341 / 1.7 / 1.7
Population in remote areas / 5 430 / 5 421 / 5 374 / 5 296 / 5 296 / -0.8 / 1.5
Public sector AWE ($) / 959 / 1 032 / 1 073 / 1 099 / 1 151 / 4.7 / 4.1

Note: Total State population is Estimated Resident Population (ERP) as at 31 December, in the middle of each financial year. Disaggregated State population data are based on disaggregated ERP as at 30June, the end of each financial year. Average growth rates cover only the years for which data are available. Data from the penultimate year is used for population 5 to 14 through to population in remote areas for 2011−12.