Saul Eslake: Budget 2018 is a solid blueprint for SA’s future, but debt will be a key concern

TREASURER Rob Lucas’ fifth Budget — and the Marshall Government’s first — delivers on its election commitments, plus will cut costs of doing business in the state but risks higher debt to fund big infrastructure projects, says Saul Eslake.

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THE self-proclaimed aims of Rob Lucas’ fifth Budget — and the Marshall Government’s first — are to “clean up the mess left” by the former Labor Government, to keep “all the Government’s election promises”, and to “build a foundation for the future”.

The Budget certainly delivers on all of the Government’s election commitments. It provides for new recurrent and capital expenditure initiatives totalling $3.3 billion over the next four years — of which the largest are in health, skills and energy. And it also funds tax cuts worth more than $600 million over the next four years — of which the largest is the reinstatement of the remissions of the Emergency Services Levy.

Economist and commentator Saul Eslake

It also includes a large increase in the tax-free threshold for payroll tax, and an increase in the tax-free threshold and reduction in the top rate of land tax.

These commitments are funded largely by savings totalling more than $1 billion over the four years to 2021-22; additional revenue from the GST amounting to around $1.25 billion (thanks to an increase in the size of the national GST revenue pie, and an increase in South Australia’s slice of it); and an increase of more than $1 billion in net debt, over and above what had been envisaged by Labor.

The Government seems to have been fairly sensible in the way it has gone about procuring savings. It has abandoned unrealistic health savings targets established by the previous government, but nonetheless expects the newly-established Local Health Network Boards to move towards national average cost levels.

It has recognised that discontinuing low-priority programs can be a more sustainable way of achieving savings targets than applying small “efficiency dividends”.

Employee numbers will decline by 2.7 per cent (or just under 2300) over the next four years, abstracting from the transfer of disability services staff to the NDIS.

The Budget’s payroll tax reforms mean SA will have the highest tax-free threshold of any State (as well as the third-lowest rate). Small businesses will welcome this, although it remains to be seen how much additional employment it will create. The land tax reforms will bring SA’s top rate of land tax, up until now the highest in Australia, more into line with those applying in other states.

These and other measures will help reduce the cost of doing business in SA, while the refocusing of industry assistance programs on sectors and initiatives which provide a strategic economic development benefit to SA represents a sensible approach to the State Government’s role in promoting economic growth.

Establishing a South Australian Productivity Commission should also be of great value — provided the Government doesn’t pick and choose from the Commission’s advice based on political convenience.

Perhaps the biggest risk in the Marshall Government’s first Budget is the increased level of debt it plans to incur in order to fund its ambitious infrastructure investment program.

The Budget abandons the previous government’s cap on the ratio of net debt to revenue, asserting that “triple A rated interstate jurisdictions are forecasting net debt to revenue ratios that range up to 41.8 per cent by 2021—22”.

In fact it is only Victoria which is forecasting that. The equivalent figure for the other AAA-rated jurisdiction, NSW, is 32 per cent (which is below the 35% cap set by the Weatherall Government).

Moreover, SA has relatively more GBE debt than either NSW or Victoria. Factor that in, and SA’s total non-financial public sector net debt will (on the Budget’s forecasts) exceed 75 per cent of total revenue by 2021-22, the highest figure since 1998-99; higher than any other jurisdiction except for WA and the NT, which are a long way from being “triple A rated”.

The Government can be proud of having met all of its election commitments, and can validly claim to have laid some solid foundations for SA’s future economic growth, but it’s too soon to claim it has resolved all of the questions over the sustainability of the state’s public finances.

■ Saul Eslake is an independent economist, commentator and speaker. He is the Vice-Chancellor’s Fellow at the University of Tasmania and previously was chief economist with the ANZ Bank.