The 2017-18 State Budget – Michael O’Neil

The South Australian State Budget 2017-18 forecasts the South Australian economy to grow at 2.25 per cent (3.0 per cent nationally) with employment growth at 1.0 per cent over the next year. Public sector employment was forecast (in 2016-17) to decline by some 700 positions in 2017-18 but will in fact now increase by some 500 positions, further cementing South Australia as having one of the highest public sector to private sector employment ratios in Australia. The forecast budget surplus is estimated at $72 million, down from a previous projected surplus of $239 million, with net debt at $6.1 billion and projected to rise in 2018-19.

The Budget has been crafted with an ‘eye on’ the closure of Holden’s, the current and future rate of unemployment, and lower levels of private sector capital expenditure (i.e. providing little stimulus to employment). Evident is a degree of political craftsmanship around promises in marginal seats with a focus on the March 2018 election. There have been complaints that regional South Australia has been ignored in the budget except for minor expenditure on jetties and extensions to the Mount Gambier airport and prison (160 additional beds at $35.4 million).

Funds have been directed to projects within marginal seats to address festering sores such as the retention of the cardiology unit at the Queen Elizabeth Hospital and rejuvenation of that hospital ($250m), the promise of a new Women’s Hospital next to the new Royal Adelaide Hospital ($528m – this was promised in 2010 as well) and additional investment at the Lyell McEwin hospital ($53m). Combining proposed infrastructure spend on roads, transport, health (about $1.1 billion) and education, the total infrastructure spend is some $2.2 billion with one proviso here, that several projects (e.g. part of the North-South corridor, Gawler rail electrification) require supportive Commonwealth funding before they are guaranteed to go ahead.

The Commonwealth have also been approached to contribute an equal amount to the Future Jobs Fund ($200m) that will provide grants and low interest loans to assist local businesses to expand. The fund will also support the work of Investment Attraction South Australia. Some 1,300 businesses will receive benefit from payroll tax rebates while the Job Accelerator Grants have been extended with an additional $5,000 for taking on a trainee or apprentice. The existing Job Accelerator scheme introduced in Budget 2016-17 has resulted in an additional 10,000 employment places effectively subsidised by the taxpayer.

The Budget provided for a ‘Neighbourhood Fund” ($40m) to enable individuals, communities and others (?) to suggest worthwhile projects in their community that could attract funding. While we are not familiar with the program’s guidelines, it appears that Local Councils/Local Government were not consulted about this, but could very well be left “holding the baby” if funded projects are then the responsibility of Councils to develop and/or maintain.

The big news item was off course the introduction of the Bank Levy (at 0.015 per cent on bank liabilities) which has received a hostile response from the banking sector with threats to cancel proposed investments (e.g. a back office operation to employ 150 staff) and an immediate anti-government, anti-levy advertising campaign. The Bank Levy is projected to raise $370m over 4 years.  The “levy” has been labelled as “economic vandalism”, “a disgrace” and a “lazy tax” with the most likely damage being to the reputation of South Australia as a high-taxing, low growth economy.  The much smaller revenue item was the 4 per cent loading on stamp duty for foreign buyers of residential property.

Forgetting all the hype, leaving aside “political” projects and planned investment directed at marginal seats a sober analysis of the budget is this – private capital expenditure in South Australia remains quite restrained, it is private investment that is the key stimulus for employment growth and the budget must be measured against this reality. The Bank Levy in itself is a negative signal to private investors and that might well be the major impact of this decision.

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