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 for 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.”

Sign up for the Breaking News Australia email

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 net operating balance in 2028-29, with state borrowings topping $202bn that year. There would be a $619m surplus the year after, he said.

Key budget measures include:

• 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, bus projects and rail in the next four years, and other infrastructure.