Recent media coverage of Queensland’s public finances — including commentary I’ve provided on public sector wages, inflation and the state’s $9 billion operating deficit — has focused on familiar flashpoints: debt, pay deals and election promises.
These debates highlight a set of core budget principles that apply to all governments, regardless of ideology.
One of the clearest warning signs in any set of public accounts is when governments are borrowing to fund recurrent spending. Public sector wages fall squarely into this category. They are not unexpected, one-off expenses, but ongoing obligations that shape spending for decades.
As I noted recently in The Brisbane Times, Queensland is now saddled with a structural budget problem — spending too much relative to revenue on an ongoing basis. This is already visible in the state’s bottom line: Queensland is running an operating deficit of around $9 billion, meaning day-to-day spending is being funded through borrowing rather than revenue. I made similar points to the Courier-Mail.
When governments borrow simply to “keep the lights on”, rather than to invest in long-lived assets, they are effectively shifting today’s costs onto future taxpayers without leaving behind anything productive to show for it. This is not a moral judgement; it is basic public finance.
Debt can be appropriate when it finances infrastructure that delivers benefits over many decades. It is far harder to justify when it is used to fund wages and other operating expenses that must be paid again next year, and the year after that.
The recent activation of an inflation-linked wage clause for Queensland public servants is a useful case study in how spending pressures can escalate almost automatically.
Under existing agreements, higher inflation can trigger additional wage payments, which could cost the state government $170 million this year alone. These payments are then incorporated into the base used to calculate future wage increases.
Indexation mechanisms can play a legitimate role in protecting real incomes. But they also reduce fiscal flexibility, particularly in periods of elevated inflation. State governments have limited ability to influence inflation in the short term, yet they bear the full budgetary consequences when inflation-triggered clauses are activated.
Queensland’s budget debate has also exposed a familiar political dilemma. When spending pressures rise, governments ultimately face three broad options: restrain spending growth, raise additional revenue, or increase borrowing.
Promising to rule out the first two inevitably pushes pressure onto the third.
As AMP chief economist Shane Oliver observed in the Brisbane Times, and as I reinforced, it is “just basic arithmetic” — if higher wage costs are locked in and taxes and charges aren’t increased, then savings must be found elsewhere, whether through fewer workers, reduced capital spending, or cuts to services.
Avoiding these choices does not eliminate them; it merely postpones them. In practice, deferral often leads to larger, more disruptive adjustments later, when fiscal conditions have further deteriorated.
A critical distinction in budgeting is between cyclical pressures and structural imbalances. Temporary shocks — such as natural disasters or economic downturns — can justify temporary operating deficits. Structural gaps between revenue and spending cannot.
Queensland’s fiscal challenge is increasingly structural. The public sector wage bill is large, growing, and difficult to unwind. Forward estimates that assume significant spending restraint without clear policy changes risk stretching credibility.
Optimistic forecasts of spending restraint in future years may provide short-term political comfort, but they do not alter the underlying trajectory. History suggests that repeated slippage against spending projections is how fiscal problems often accumulate quietly until they become acute.
Queensland’s current budget debate is not unique. Similar pressures are emerging across Australia as governments grapple with higher wages, higher interest rates, and lingering deficits.
The lesson is straightforward: budgets are governed by arithmetic, not aspiration. Sustainable public finances require governments to align ongoing spending commitments with sustainable revenue, acknowledge trade-offs openly, and act early when structural problems emerge.
Ignore these principles, and adjustment will eventually be forced — just not on a timetable of the government’s choosing.
Gene Tunny, Director, Adept Economics.
Published on 2 February 2026. For further information, please contact us at contact@adepteconomics.com.au or call us on 1300 169 870.