Queensland’s economy teeters on edge of ratings downgrade despite coal royalty windfall

Queensland’s treasurer says he’s “not giving up” on halting a ratings downgrade of the state’s finances after handing down a budget full of red ink, amid predictions state borrowing will top $200bn in three years.

David Janetzki promised a budget surplus in 2029-30, the year after the state’s next election – but only after years of billion-dollar deficits.

Handing down his second budget on Tuesday, Janetzki forecast relatively positive economic growth and a strong labour market despite volatility caused by the conflict in Iran – and billions more in coal royalties to the state, driven by a 6% rise in exports in 2026-27.

The state will earn $6.9bn in coal royalties that year alone, up from $4.79bn in 2025-26, according to the budget.

But despite a forecast recovery in coal prices, the state continues to teeter on the edge of a credit rating downgrade.

“Labor’s legacy left us highly likely, or even an air of an inevitability, to getting a rating down grade, but I’m not giving up,” the treasurer said. “We’re not giving up because we’re making the budget improvements while delivering what we promised.”

In February the rating agency S&P affirmed a negative outlook for Queensland government debt, warning of “large deficits”. It described the state’s budgetary performance as “weak” but refrained from a credit downgrade, saying it expected a return to operating surplus in the 2028 fiscal year.

But Janetzki’s budget forecasts a $1.9bn deficit in 2028-29, with state borrowings topping $202bn that year. There would be a $619m surplus the year after, he said.

The budget includes:

The state is running a $6.2bn operating deficit this year.

Government revenue will increase 5.1% over the forward estimates, driven by increases in government duties, payroll tax and royalties.

Spending will grow, rising from $100.8bn in 2025-26 to $111.6bn in 2029-30.

The government says it is committed to returning the budget to a “fiscally sustainable position through strong expenditure management”, with expense growth dropping from 4.9% in 2026-27 to an average of 2.6% over the four years to 2029-30.

Half a billion dollars will be saved through better coordinating procurement, reducing the cap on senior executive positions and reduced spending on contractors and consultants.

$119.2bn for new roads, transport projects and other infrastructure in the next four years.

The budget does not include:

Construction funding for the long-awaited Borumba pumped hydro scheme, and no money for the multiple smaller hydroelectric projects promised by the LNP at the last election.

Compared with Labor’s last budget, there’s limited short-term cost of living relief, with premier David Crisafulli saying there were no “sugar hits” in his budget.

Janetzki said the state also wanted to ease financial pressure on households with measures including:

Exempting first home buyers from stamp duty when building or buying a new home. The state will also extend the $30,000 First Home Owner Grant.

An increase in the Back to School payment by $50, now paying $150 for school supplies.

A freeze of bulk water prices for two years, a saving of about $130 for residents in Southeast Queensland.

A continuation of the state’s free kindergarten for another four years, paying fifteen hours of free kindy a week for all four-year-olds.

Funding for the state’s 50 cent fare scheme, which will be legislated.

Funding for the Queensland revenue office to pursue existing tax and penalty debt”, a scheme expected to raise about $220m in revenue and $612 in debt recovery in the next four years.

The premier, David Crisafulli, said the government had fulfilled his promise of no new or increased taxes.

“We haven’t taken the easy road, haven’t found justifications to whack people with new taxes under the cover of global crises,” Crisafulli said on Tuesday.

“We’re on your side, and we’re going to continue to drive down tax, not find new ways to tax you.”

Brisbane’s 2032 Olympics are another challenge for the state budget, though Crisafulli pointed out the state would spend more than twice as much on health infrastructure as it would on the Games.

The government has yet to break down the budget for Queensland’s 17 Olympics venues beyond the global $7.1 figure for the Games as a whole.

Crisafulli defended his decision not to reveal the cost of the projects.

“Queenslanders will get full visibility on every one of those projects,” he said. “Right now, we’re arm wrestling and driving down contract prices.

“I’m very, very confident about the $7.1bn figure for the games venues.”

The Liberal National party government was elected on a platform of cracking down on crime, particularly youth crime.

Queensland’s jails are now 135.5% full, down on last year’s 144.5%, due to the opening of the new 1,500-bed Lockyer correctional centre last September.