STATE BUDGET

Mr GRIFFITHS (Goyder) (14:20): My question is to the Treasurer. Why have employee expenses in the government's budget forecast blown out by $541 million? The forward estimates papers show that, from the 2007-08 financial year to 2010-11, salaries and on-costs were revised up by a total of $541 million in the six months between the 2007-08 budget and the 2007-08 Mid-Year Budget Review.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:21): They take a long time to think up these questions. This government, since coming to office—as I said earlier, before rudely interrupted by members opposite—has successfully managed our economy and our finances.

Members interjecting:

The SPEAKER: Order!

The Hon. K.O. FOLEY: What we have been able to do is balance both the need for improved government services with the available resources that we have.

Mr Williams interjecting:

The SPEAKER: I have already warned the member for MacKillop once.

The Hon. K.O. FOLEY: As we have seen, and as I have commented in this place and publicly many times, the demand for increased government services is insatiable.

Members interjecting:

The Hon. K.O. FOLEY: Well, when you improve services, when you add somewhere between 6 and 9 per cent each year into the health system, you employ more nurses, doctors and, yes, administration staff. As you increase the police force by some 400, yes, you increase the payroll. When you increase expenditure in education and you lower class sizes, you increase employee costs. Approximately 75 per cent of government outlay goes in wages. We are a service-delivery government. That is what state governments do. When you increase services to the community you increase the number of people providing those services.

What I am proud of is that we have regained the AAA credit rating, something the previous Liberal government was incapable of doing. We have maintained the AAA credit rating. But I give this warning, not just to members opposite but to the general community, that the finances of this state remain very tight. In fact, the recent methodology review by the Commonwealth Grants Commission has significantly revised down the amount of revenue that will be distributed to this state.

In the forward estimates, from memory, our state will lose somewhere in the order of $100 million per annum that we otherwise had budgeted for, simply because the latest census data indicates that there are significant demographic changes to our community. So, therefore, under the distribution relativity of the Commonwealth Grants Commission, we will see our payments decrease initially, I think, from some $60 million to something in the order of $100 million.

On top of that, with increasing interest rates, it would be expected that we would see a moderation in housing demand. In line with that earlier question, on the advice that I have before me, the number of dwelling approvals in South Australia rose by 1.6 per cent during December and was the highest level of approval since March 1993. So the housing construction market is very strong. Obviously, with interest rates increasing as a result of the very poor fiscal policy of the former Liberal government in Canberra, we will see some moderating of demand as it relates to housing.

That also will impact on government finances. It is no secret that we have had a significant slump in world equity markets, which we alluded to in discussion last week, and that will obviously impact on the level of unfunded liability as it relates to the state superannuation schemes, the Fund SA schemes, which will necessitate, on advice at this stage, probably an extra $60 million per year that now will have to go in to meet the payback period on our equities markets.

Whilst Funds SA is extremely well administered, the board of Funds SA is as high a calibre board as one could hope. It is impossible for anyone to ride out the current turmoil in the world equity markets and, at this stage, our advice is that that will require a further $60 million from the budget. The point of that answer is very simple; that is, even since the Mid-Year Budget Review, we have had a number of factors that are significantly reducing the available income to the state, and therefore less income available in terms of future service delivery. The budget remains in a very tight position, but I am still confident that we will maintain healthy budget surpluses going forward.

Mr WILLIAMS: I rise on a point of order, Mr Speaker. The Treasurer keeps talking about revenues, but the question was specifically about the blow-out in expenses, and he has not gone anywhere near trying to explain that yet. The expenses in the employee on-costs—

The SPEAKER: Order! I do not uphold the point of order. The Treasurer.

The Hon. K.O. FOLEY: I have finished that one.