SA needs economic Plan B as global, national markets wobble
A misguided federal fixation on budget surpluses and an uncertain deadline for defence rivers of gold means SA needs new ideas to boost its economy, experts warn.
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A “PLAN B” to tide the state over until defence money begins to flow in earnest is needed, given the economic weakness both nationally and turmoil globally, economic commentator John Spoehr says.
Both Mr Spoehr, pictured, from Flinders University, and the SA Centre for Economic Studies’ executive director Michael O’Neil say governments should be taking advantage of low interest rates to pull forward big-spending infrastructure projects.
“We won’t see the full benefits of investment in shipbuilding for another few years, so there is an investment gap that needs to be filled to sustain higher rates of State Final Demand in the short term,’’ Mr Spoehr said, responding to weak economic figures released this week.
“A ‘Plan B’ will be needed to head off adverse consequences arising from global political and economic instability.
Lowering interest rates further won’t solve the problem of insufficient demand that we face as middle and lower income households confront the limits to their spending ability.’’
Mr O’Neil said the “obsession” with budget surpluses at the national level was clouding good judgment about the opportunity presented by low interest rates.
Boom or doom?
It was the best of times, it was the worst of times. It was the age of high unemployment rates, it was the age of jobs growth. It was the epoch of unprecedented defence spending, it was the epoch of poor economic numbers.
What would Charles Dickens have said about the South Australian economy?
Half the pundits and politicians will tell you it’s our “spring of hope”, the other half our “winter of despair”.
It’s been press releases at 12 paces this week, with the Opposition screaming “recession” and Premier Steven Marshall saying “the trajectory is very, very positive”.
This was in response to two sets of figures: an 0.9 percentage point jump in South Australia’s unemployment rate to 6.9 per cent, making it the highest in the nation, and State Final Demand (SFD) figures, which have gone backwards for two quarters.
Opposition treasury spokesman Stephen Mullighan was quick to roll out the “R” word, cannily pointing out that Treasurer Rob Lucas made the same call in 2013 while in opposition.
But with SFD — a measurement of economic activity that does not include export figures — it’s not so clear-cut.
And the same set of figures, released by the Australian Bureau of Statistics, show that we’ve hit the highest levels of private business investment on record, at $12.7 billion in the year to the end of June.
What is certain is that the much-anticipated rivers of gold from SA’s defence industry — supercharged by the looming Future Frigate and Future Submarine builds — are yet to flow. But are we in recession?
It’s a flat “no” from South Australian Centre for Economic Studies executive director Michael O’Neil. But that’s not to say all is rosy.
“Nationally, we’ve got a slowdown in GDP growth,’’ Associate Professor O’Neil said.
“Personal income is static — no wage increases. Three worrying signs are the outlook for employment, the decline in retail sales and the decline in manufacturing activity.’’
He said there was a risk nationally of slipping into a recession, but we weren’t there yet. “What we’re seeing in the South Australia labour market is employment has gone up, and that’s supported by the participation rate going up as well, so that suggests there’s some underlying confidence, some underlying changes in the South Australian economy,” Prof O’Neil said.
“But when you look at the economy, you wonder where the stimulus is. The Federal Government’s attitude to maintaining a Budget surplus when interest rates are moving toward zero (is wrong). You’ve got some companies awash with money, they’re not spending it because they’re uncertain about the future … now is the time to look at fiscal stimulus, look at major infrastructure projects needed for the 21st century.’’
John Spoehr, director of the Australian Industrial Transformation Institute at Flinders University, said a number of factors were constraining growth at the moment.
“Household consumption is being held back by sluggish wages growth and job insecurity,” he said.
Professor Spoehr said government infrastructure spending locally had come off recent highs and something needed to be done to fill this gap.
“In other words, we need to bring forward as many government-funded infrastructure projects as we can to help stimulate demand and boost full-time jobs growth,” he said.
“A ‘Plan B’ will be needed to head off adverse consequences arising from global political and economic instability. Lowering interest rates further won’t solve the problem of insufficient demand that we face as middle and lower-income households confront the limits to their spending ability.
“We won’t see the full benefits of investment in shipbuilding for another few years, so there is an investment gap that needs to be filled to sustain higher rates of State Final Demand in the short-term.’’
Business SA chief executive Martin Haese said while business conditions were steady, confidence had taken a hit, and the debate around the State Government’s proposed land tax changes was damaging.
He said a “considerably stronger” focus on export growth was needed.
The state lags the nation in exports, with one of the Marshall Government’s goals to bring SA at least up to the level proportional to our population.
Mr Haese said a stronger focus on education for businesses seeking to export would be a good start.
Treasurer Rob Lucas said increasing infrastructure spending was “Plan A”, not “Plan B”.
“The Budget was based on managing the transition to defence and space-related jobs,” he said. “Our Budget already includes bringing forward infrastructure spending on roads, schools, et cetera, and funded by a significant increase in the state’s debt.
“The Budget includes a massive $11.9 billion infrastructure program to help sustain economic and jobs growth in SA.”