State treasurer blames Labor’s property tax overhaul on worsening state finances, but Federal coffers remain in good health
Queensland treasurer David Janetzki (pictured) has lashed out at the Commonwealth's monumental property tax overhaul, blaming it for triggering the state's first credit rating downgrade since 2009.
S&P Global Ratings confirmed the downgrade to AA from AA+ this Friday, a rating the state had held for 17 years.
Janetzki pointed to the federal Budget's changes to negative gearing and capital gains tax (CGT) as a key driver behind cooling property prices and a sharp drop in the state's stamp duty revenue – and, in turn, the downgrade.
The downgrade matters because it raises the cost at which the state borrows to fund infrastructure – a cost that flows through to state budgets, taxation settings and, potentially, the broader lending environment.
"After a decade of fiscal vandalism under the former state Labor government, which left Queensland on track for a credit rating downgrade, Queenslanders are now also paying the price for Jim Chalmers' budget decisions,” said Janetzki.
He added: "Jim Chalmers confirmed on the floor of parliament today what we have long been saying: that Canberra's continued cost-shifting onto the states has had a material impact on state budgets."
Chalmers didn’t take the accusation lightly. "State treasurer David Janetzki is getting billions more in Commonwealth support, billions more in stamp duty and GST, and billions more in coal royalties. At the same time, he has been softening Queenslanders up and telling them that a credit downgrade is 'inevitable'.
“That's a damning indictment on the Queensland government's economic credibility after almost two years in charge of the coffers... David Janetzki has some real questions to answer."
Separately, in comments to ABC's 612 Brisbane before the downgrade was confirmed, Chalmers said: "The Queensland budget is not under pressure because of the Commonwealth," and called it "absolutely wrong" for Janetzki to attribute the state's fiscal pressure to federal decisions.
Independent economist Saul Eslake said Queensland's fiscal position has deteriorated faster than most other states, and that "it's not obvious to me that the government is really doing much about that; there aren't policy decisions to reduce spending or raise additional revenue”.
However, the sudden cooling of the Australian property market following the May Budget – which removed generous tax concessions for property investors – has had an undeniable impact on finances at the state level.
NSW stamp duty revenue fell 20% year-on-year in July, to $739.2 million from $919.9 million, driven by falling transaction volumes.
Janetzki expects Queensland to lose a billion dollars in stamp duty revenue this financial year.
Will the downgrade impact mortgage rates?
A credit downgrade typically forces a borrower – in this case the Queensland government – to pay a higher interest margin on new and refinanced debt, because lenders and bond investors demand extra compensation for perceived higher risk.
Mortgage rates track long-term bonds, such as the 10-year yield. When these yields rise due to a downgrade or mounting national debt, mortgage rates generally follow upward.
But Queenslanders aren't expected to be impacted by the downgrade, given mortgage rates are set nationally off wholesale pricing markets.
"The Queensland rating change won't impact that,” AMP chief economist Shane Oliver told MPA. “If the federal rating of AAA was revised down, then there may be an impact, but that's not the case."
The real pressure point for mortgage holders is the broader run-up in global bond yields rather than any single state's rating action.
Rising bond yields lift government borrowing costs across the board – public debt interest is already the fastest-growing major spending item in the Federal Budget, Oliver noted, accounting for around 5% of tax revenue, a trend that leaves less room for welfare payments and other services and builds pressure for fiscal austerity.
For borrowers, the more direct consequence runs through banks' own funding costs: Oliver expects lenders to lift fixed mortgage rates as yields climb, reducing the appeal of fixed-rate loans relative to variable ones – particularly with the Reserve Bank of Australia (RBA) tipped to hike again before Christmas arrives.
