SUPPLY BILL

Second Reading

Adjourned debate on second reading.

(Continued from 4 March 2008. Page 1843.)

Mr GRIFFITHS (Goyder) (11:43): I indicate from the start that I am not the lead speaker on this matter; the Leader of the Opposition will take on that role. I refer, of course, to the Supply Bill 2009, which, as I understand it, is for the appropriation of up to $2,750 million to be made available to meet the needs of the state as we come to the forward period. I think that, sadly, I will contribute the type of message that has been delivered by oppositions probably forever in a supply bill debate, because it is an opportunity to analyse government priorities in previous years, to consider its areas of expenditure and income, to express concern about its management of liability and debt and, really, to put the case across to this chamber about the issues that we feel face South Australia from a financial perspective. As we all know, the world is a very different place to what it was 16 months ago, so finances are impacting on everything that is occurring.

I will start, though, from the beginning and talk about our review of the Mid-Year Budget Review presented by the Treasurer, I think, just prior to Christmas 2008. Our review of that indicates that the problems lie in an expenses situation and not necessarily with the revenue. Certainly, we know that the Treasurer has commented on the fact that, from last year's end of year result (which, I believe, is a surplus of some $460 million), we now know from the Mid-Year Budget Review from a net operating option (one of three that are available—which the Treasurer has chosen to use even though it was not his original intention) that the deficit for this financial year will be some $112 million.

I highlight that that figure is from the Mid-Year Budget Review. Since then we have had a further deterioration of that financial position, as a result of the confirmation by the federal government of a lessening of GST revenue. I understand that is an additional $880 million, and the component that relates to this financial year is $155 million. Therefore, adding those two figures together, it potentially pushes it out to about a $260 million deficit for this financial year. A lot of factors come into it, but that is the possibility.

When talking to people around the state in the last couple of months, I have been trying to reinforce the fact that, while being concerned about the deficit, they have to look at the end of year results for the two financial years and what the cumulative effect will be. With an end of year surplus of some $460 million and a potential deficit of $260 million, it is a $720 million turnaround. Now, $720 million out of a $14 billion budget is a significant amount. It is an area about which South Australians need to be concerned. That is where we reinforce the fact that the revenues have been quite good—in line with the predictions from the budget delivered in June 2008—but the expenses create this problem.

We know that the government, as part of its management of the deteriorating situation, is intending to sell properties, including some 600 government employee houses around South Australia. Certainly, that is a concern, given the current state of the residential property market and the value which will be realised. These homes provide an accommodation option for teachers, police, doctors and nurses who work in regional South Australia. It is hard enough to get people into those areas, let alone not having a house available for them.

We know that there has been a deferment on infrastructure that is intended to be built. Certainly, the largest example is the Murray Bridge prison, which has been put back two years to 2013. That is an enormous project involving a public-private partnership. The new minister has been making announcements about additional expenditure within prisons in order to accommodate more prisoners. The shadow minister has told me that bed occupancy within prisons is above design capacity, so deferment of those projects is a concern.

I want to talk about public-private partnerships. Some 16 months ago it was announced that a hospital would be on a greenfields site at the railway yards. We know from recent comments provided by the Treasurer that the funding model for this project will change because of the tightness of the credit market when it comes to attracting private investment. From what I have read—and certainly the Treasurer confirmed this in his statement in the house several weeks ago during question time—while there is a willingness in the marketplace to provide up to $700 million towards public-private partnerships, it is reported that the hospital will cost $1.7 billion—again, there is no basis for the real costings behind that figure, other than a cost of $10,000 per square metre for the site, as I understand it—and, according to the Treasurer—which has been confirmed by information available publicly—the government will need to borrow $1 billion for this project. We have concerns about the long-term impact of borrowings upon the state, especially in relation to its AAA credit rating—and I will speak about that in the future.

We recognise that a public-private partnership is a viable option for infrastructure builds. Many states of Australia are pursuing public-private partnerships. Predominantly, they have been an option in the eastern states. South Australia first chose it for police stations and courthouses. That was a $34 million project which worked quite well. It will be interesting to see what the final mix will be, if the election result next year allows the Labor proposal to go ahead. I work with a different philosophy where it will not be an option, because we in opposition are proposing a very different project. It will be interesting to see what happens.

I have talked a little about the fiscal outlook for this year, but there are three measures if a government balance sheet is in deficit or surplus and, upon his ascension to the role in 2002, the Treasurer intended that net lending would be used, but that was forfeited some years ago because it is a very difficult accounting measure to determine that we are in surplus. Indeed, if we look at the Mid-Year Budget Review and the net lending position, we see a deficit of some $819 million.

We have become rather flippant when we talk of dollar figures, but we should never do that because they are public funds. When we in this chamber refer to projects, infrastructure and services that cost millions, we must remember that every one of those dollars of those millions actually comes out of the pocket of the people who live in our state.

There are 1.6 million people in this state, and we need to ensure that we present budgets that are balanced and have the capacity to provide the services and infrastructure required. We need to ensure that budgets are presented that take money within a reasonable range, and this is where, in the past six months, land tax has been a concern within the South Australian community.

I have spoken in this chamber previously about land tax, and it is a very topical issue on radio and in the print media. Those who hold properties other than their principal place of residence are very concerned about the impost land tax is now forcing upon them. The Treasurer espouses the fact that the increase in valuations is a good thing for the state and, to some degree, I understand that. However, when the increase is without any adjustment to the threshold of figures for land tax or, indeed, the rates applicable across those thresholds, it really make a difference.

I am aware of stories of land tax liability increasing from $14,000 to $124,000 across a group of properties, with no change to the scope of those properties, in two consecutive years. How can any businessperson plan for that level of cost increase? The bottom line is critical to everything so, unless we ensure that we have tax policies which attract business to the state and which act as an incentive and not a negative to investment opportunities, it will be very hard for us to move forward.

The Mid-Year Budget Review identifies that state revenues have improved by $180 million since the 2008-09 budget was handed down on 5 June. The dilemma, and the reason for the significant deficit we are now left with, is that expenses have increased by $453 million, and that is what needs to be identified. Revenue is coming in on budget or, in some cases, above it, but the expenses are out of control.

Our estimation is that, to some degree, the federal government is making up the difference. In 2008-09, in the areas of health, education, housing and community service, this state's payments are above what was originally intended and it will receive an extra $429 million. You could say that is the result of good negotiation between the two levels of parliament but, importantly, I think it is an example of the fact that federal Labor understands that all states are suffering from financial issues, that the economy is struggling and that people's confidence is down because they are concerned about their future.

So, the federal government is prepared to mortgage its soul to some degree to ensure that it has funds to inject into the economy. In itself, that is a good measure, but our concern is the level of future funds that are being borrowed to fund this expenditure. I read with a lot of concern the federal proposal to increase the maximum borrowings from some $75 billion to $200 billion. On those figures, I cannot even begin to imagine the long-term liability to our nation if we get to level of debt, from a government perspective, on federal borrowings.

I know that, between 1 January and 30 June this year, the federal government is issuing about $1 billion of bonds per week in an attempt to raise $25 billion or so. The state certainly has a lot of challenges. It is interesting that the feds have guaranteed state borrowings, initially at a slight additional premium, but we need to move forward.

I will also talk for a little while about the unfunded superannuation liability which, for me, has been an issue for some time. I understand that the defined benefit scheme previously in place for public servants was very beneficial to those who work in the Public Service—and there is no doubt about that—but it created a liability that future taxpayers would have to fund.

There is a plan in place for superannuation to be fully funded by 2034. My understanding is that that plan was put in place during the first term of the Liberal government, with Stephen Baker as Treasurer—I could be corrected on that—and that time frame has not changed. Since defined benefits have been replaced in the main by accumulated benefit schemes, where people's eventual superannuation is dependent upon the level of investment made by the employer around themselves and, indeed, the return that those investments receive, it will create an easing of that longer term liability.

However, we know that in the short term there have been significant jumps in unfunded liability for a couple of reasons, predominately through lower returns on investments within the global market. South Australia is like many other places in the world where investments are as diversified as possible with a fair spread of where those dollars go.

We know now that the stock market crashes in the last 16 months have resulted in overseas shares, especially, decreasing by far more than the Australian share market, which I think has gone down about 45 per cent, but it is interesting that the superannuation unfunded liability has increased from $5.1 billion in 2006-07 to $9.3 billion in 2008-09. It is expected to increase fractionally more and then stay relatively stable for a few years before it eventually starts to decrease, until we get to 2034 when there will be a level of full funding for it.

The credit rating for South Australia is of real concern to me. On first reviewing the budget papers when I came to this place, I noted that it seemed as though the ratio of 75 per cent of liabilities to revenue was a trigger point. Now we know from the Mid-Year Budget Review that this financial liabilities to revenue ratio is actually 87.3 per cent and that it is predicted to increase to 92.1 per cent next year. It really does make me wonder how long we are going to retain our AAA credit rating.

The Treasurer has taken great pride in the fact that he was the person in charge upon the return of the AAA. I know that he has held a very strong belief that he would do everything possible to ensure its retention, but that policy has had to be relaxed by virtue of the fact that it is important that governments continue to spend to create job opportunities in order to create a stronger economy in these difficult times. However, one wonders when our state will be exposed to the very serious risk of losing its AAA and going to a lower rating. In effect, that will actually cost the state more, because the cost of borrowings will increase.

I believe that in Queensland, which has the expectation in future years of an enormous amount of borrowings to fund infrastructure, following an increase in interest costs as a result of losing its AAA credit rating just prior to the recent election, it will cost them about $300 million per year extra in interest payments.

South Australia has had, until very recently, a relatively modest level of borrowings, but the Treasurer is certainly announcing—and I believe I am stating this correctly—that, in future, his intention is to go to the marketplace to borrow some $2.2 billion (I think that was the figure he mentioned). That, coupled with the new hospital potentially requiring borrowed funds from the government and the $1.1 billion that is intended to go into the desal plant, will really start to put the level of debt of this state up into a red alert area where not only the trigger effect will be reached but we will have to look at how this budget operates structurally to ensure that we have any chance of retaining our AAA credit rating.

As the Treasurer stated on the record on 14 October 2008, the crashing of revenue has blown these ratios up into the red light territory. I enforce my previous comments. Revenues are reasonably stable for the budget, but it is in expenditure where the real difficulty lies, with an additional $450 million of expenditure across the forward estimates according to the Mid-Year Budget Review. Tasmania has a lower rating than us, but its liability ratio is actually better than ours.

Standard and Poor's, no doubt, will review this on a regular basis. I know that the Treasurer is talking to them, and has other people talking with them, about the key points, but it will be interesting to see what happens. It is important for the state that we ensure that we keep it under control, because if we borrow more money and, all of a sudden, the interest payments increase, we do not want to return to those very terrible days of 1996 where federal debt was $96 billion, and $8 billion per year was being spent on the interest costs alone.

Revenue has actually been an interesting one because, while the Treasurer espouses his capacity to finely manage the budget to deliver surpluses and get debt down, we note that, between 2002-03 and the 2007-08 financial year, revenue in this time collected above the budget predictions was actually a massive $3.7 billion (not $3.7 million, but $3.7 billion) more than was expected.

The Auditor-General has, in quite a few reports, actually noted concerns about this, because the state has received very large amounts of unbudgeted revenues and appeared to be relying on this fact to actually ensure that the books were balanced and surpluses delivered in each year and across the forward estimates. So, we have much to do.

From our point of view, as a party that certainly wants to support the economic growth of our state, we have a lot of concern about the increases that have occurred in state taxation revenue. Payroll tax in the period of this government has increased by 52 per cent; taxes on property have increased by a massive 104 per cent; taxes on gambling by 29 per cent; insurance, 43 per cent; and motor vehicle taxation by 35 per cent. Overall taxation revenues increased by 63 per cent in those seven years or by an average of 9 per cent.

There is an expectation in the community for some level of increase. We know that costs go up, but how are people who in the majority of cases in this state are on fixed incomes through wages, salaries, pensions or other benefits meant to try to fund increases in costs like that? Land tax, which we know is 126 per cent above the mean average in the nation, is a classic example of that.

There is the need for review but, sadly, it does not appear to be very high on the Treasurer's priority list, and we are not getting the review that we need. I understand that revenues need to come in, but expenditure needs to be controlled. We need to ensure that these revenues reflect the ability of the community to pay, too, and I am not sure if we have done so.

It is interesting, on the matter of revenue, that SA Water has actually put into the state's coffers. Since 2002-03, SA Water's customers have funded Treasury by some $2 billion. We know that, out to the 2010 period, that is predicted to be some $2.5 billion. We know that water prices are being reviewed and increased significantly and, especially for those people in the lower end of use, will be increasing by some 97 per cent between 2007-08 and 2009-10.

Water pricing is an important issue, because it is an important management tool when it comes to total water consumption, but charging that level of increase for people at that level of usage really does raise a lot of concerns.

Time expired.

Dr McFETRIDGE (Morphett) (12:03): I rise to speak on the Supply Bill before us, and I note that it is for the supply of $2.75 billion. That is an interesting figure. If you look at the unfunded WorkCover liability at the moment of $1.3 billion that was announced last week, and then look at the fact that WorkCover is now a really worrying 51.7 per cent funded and you work that back, that means that the total liability for WorkCover now is $2.7 billion: almost the same figure as this Supply Bill.

If you then add on to that $2.7 billion the government sector for workers compensation, which was about $400 million unfunded (it is probably now $600 million unfunded), its investments will have been dropping off as well through government sources, so you are probably looking at close to three quarters of a billion total liability there.

Then you add in the sleeper that has come in with this new legislation which this government introduced last year and which was going to solve all the problems of WorkCover: the introduction of provisional liability to WorkCover claims. The government just does not know what it is in for there. I think that a round figure of $4 billion would not be out of the ballpark for the total liability of WorkCover in this state. If you look at the state's unfunded superannuation liabilities, you will see that we are talking billions and billions of dollars. South Australia is in a very precarious financial state.

I am no economist but I do know that if your income and expenditure are out of balance, if you cannot pay your debts or your loans, then you are in real strife. We have seen it before in this state and we are now seeing it federally; there is a big splash of cash, with the Rudd government spending like a drunken sailor. I have to wonder when it will end.

We hear so much about the AAA credit rating, a very important badge of honour for the Premier over there. We know who lost it, and we know that there is criticism about how it was regained by this state. There is a lot of criticism about how the electricity assets in South Australia were leased out—sold, some people say—but it is on the record, the Auditor-General has said, that if it were not for the fact that those assets were sold or leased out (or whatever they want to call it), we would still not be anywhere near recovering that AAA credit rating. It was a hard decision made by the former Liberal government and it was an unpopular one, but it was the right decision. It was the right decision because even today, in TheSydney Morning Herald, the former premier of New South Wales, Morris Iemma, talks about how the New South Wales government should have sold off its electricity assets—its retailers, producers and its power stations.

However, in New South Wales the unions took hold and made sure that the electricity assets in that state were not sold off—and now their value will decrease. In the same way, when we were discussing selling the assets here, it was held up by a number of people in the upper house and those assets lost value. We could have received a lot more for them than we did but, when the decision was finally made to sell those electricity assets, the money that came in took billions off the debt that had been created by the State Bank, as well as addressing other mismanagement that went on in the early 90s. That money helped to get the AAA credit rating back, but even today the Labor government still gives us a hard time about selling ETSA.

Just look over the border to New South Wales and see what is happening there; see what the Carr government and the Iemma government tried to do. Their ideologies (and I am not so sure they were real ideologies; it was political game playing) got in the way, and it has created a financial mess. If you want to see a financial mess then look no further than New South Wales; it is in an absolute mess.

The need to manage this state's economy is no more crucial than now. We hear so much about the global financial crisis; it is on everyone's lips, and every time you open the paper there is another issue. It is doom and gloom all the time. Sure, a lot of that is a state of mind; a very wealthy businessman, who used to be a client of mine, said to me that recessions and depressions are a state of mind. To a great extent they are, but the greatest motivators in life are fear and greed; it is certainly greed that got us into the position we are in now, and fear is beginning to take over.

It is a terrible position to be in, both around the world and in Australia, and having to have all these fiscal stimulus packages that the Rudd government believes will solve our problems. Personally, I do not believe they will; I am not an economist but I see this money going out there, all this debt being created, and I wonder who will pay it back and at what interest rate. We all remember how much the Belgian dentists were pulling out of this state and the enormous interest rates when we ran up debts on money borrowed from overseas, as this government is doing now. Whether it is China or other investors, it is an atrocious position to be in.

I was shown a documentary recently on YouTube called 'Money is debt', and I recommend that everyone in this place who is not an accountant have a look at it. It talks about how we used to trade with beads and feathers and valuable trinkets, and how we then started trading with gold and silver. For quite a while money was as good as gold, but (and I think it was in the late 1920s or early 1930s) that relationship between a $1 note and one dollar's worth of gold was broken. It then went to a $1 note and a dollar's worth of silver, but I think that was broken after the Second World War. Now it is really an IOU; we have a $1 note that is an IOU. If we look at money as debt, we will see that all we have now is a system of tokens, whether they are tokens in our wallets or tokens printed on a computer screen. They are really tokens that represent the amount of debt circulating in the economy.

Last week in the US, it was said that, if all the printed money and all the coins were gathered in the US, it would add up to about $300 billion—not very much when you consider that the total money that is supposed to be in circulation is in the trillions of dollars. So, where is that money? It is not as good as gold any more. It is debt and, unfortunately, the world is sinking deeper and deeper into debt with so-called fiscal stimulus packages. I just hope that people much wiser than me—and obviously there are, because I do not claim to understand this at all—will be able to give us some indication of when this will all end and when the debt will be reduced.

I hope that there is some relief for homeowners with interest rates being reduced by the Reserve Bank. That certainly will help. I am very concerned about the relationship that will be created between banks and borrowers who are paying off mortgages if they take a payment holiday. What is not being emphasised is the fact that their interest is going to be capitalised, so that, in the end, they will end up owing more to the bank, putting them deeper in debt. So, if you do lose your job and if you are unfortunate enough to be in a situation where you have to sell your house, you will be further in debt.

I am very concerned about some of the directions we are taking. I do not claim to understand them. I wish someone could explain them to me. I am just a humble veterinarian. I just wish that people could know, because I have been in debt—I have been seriously in debt. I remember when we used to pay 17 per cent on our mortgage and 23 per cent on the overdraft. I do not wish anybody—my children, your children or anybody's children—to be in that position. It is a terrible position to be in.

I refer the house to a paper that was put together by the Public Service Association a few years ago that talks about financial management and credit ratings. It talks about the role of credit rating agencies. The paper states:

During the 1980s and 1990s, the judgments made by credit rating agencies came to be seen as crucial in evaluating the performance of Australian governments.

If you listen to this Premier and to a lot of people out there, having a AAA credit rating is the be all and end all—and it may be.

The member for Goyder has just talked about some of the issues he sees associated with the downgrading of our credit rating, and I think we are right on the tip of that. I know that Standard & Poor's warned the government over 12 months ago—I think about April last year—that the then $846 million unfunded WorkCover liability was a very worrying issue for them. Now it is at $3.1 billion. If we look at the total liability of WorkCover, including provisional liability, we are talking about $4 billion. We cannot sell 333 Collins Street, we cannot sell Scrimber and we cannot do all the other things that we did then to help reduce the debt and get us back into a better funded position. The returns from investments held by many agencies—including WorkCover—are unfortunately still decreasing, and I just wonder when it will all end. The Public Service Association paper further states:

Although credit ratings are indeed seen by some commentators as an indicator of the financial management credentials of the government, the perception is baseless. It is quite possible for a government to adopt very poor financial and economic policies, while maintaining a strong credit rating.

That is exactly what we have here. This is a government that has had rivers of gold running for the past seven years. Revenue has not been the problem. Revenue has not been a problem for the government. It has had more money than it could ever have wished for. The government's problem is expenditure: it just has not been able to control the household budget and certainly the state budget. It just has not been able to control that. So, the point made here, that it is very possible for a government to adopt very poor financial and economic policies while maintaining a strong credit rating, is perfectly correct.

The only real effect of change of credit rating arises through the impact of the cost of debt.

That was said by the member for Goyder: a very valid point.

The Public Service Association paper continues—and this is something that I find quite interesting, particularly in light of the recent global financial crisis, because this was stated back in 2002:

...the track record of rating agencies in predicting defaults by private corporations is not particularly good...

'Not particularly good'—I think that is a complete understatement. In 2002 it stated:

Moody's Investors Service, Standard & Poor's and Fitch Ratings maintained high ratings for Enron while its stocks plummeted until four days before it filed for bankruptcy on 2 December.

It also points out here that there were other examples of default on securities that were rated as AAA. The most recent example given here was in November 2002, with the collapse of a health service lender, National Century Financial Enterprises. Moody's Investors Service rated National Century as AAA until only days before it filed for bankruptcy. Similarly, in Australia in the 1980s we all remember that the ratings agencies and other financial markets did little to warn Australians of the dangers associated with these so-called entrepreneurs (the white-shoe brigade of the day) such as Bond, Skase and Spalvins whose activities were largely financed by debt.

That word 'debt' keeps coming up all the time. It is a real worry for me, it is a real worry for the mums and dads out there, and it is a real worry for people in all positions of power because we do not know when it is going to end. Greed has created it to a large degree but now fear is taking over. The Public Service paper finishes by stating that 'the natural focus of rating agencies is not on net worth, but on net debt'. The debt that this state government is getting the state into—we have been there before and we are seeing it all again—means that we are going to end up with an absolute mess. This time next year, when the Liberal Party is in government, it is a mess we are going to have to contend with and it is, once again, going to be a massive problem for each and every South Australian taxpayer.

Let us have a look at the Mid-Year Budget Review. As I said before, this government has not had a problem with revenue, it has been a problem with expenses. We have seen a blow-out in everything this government has touched. Every project this government has touched has blown out, whether it is shared services, whether it is building an underpass, whether it is building a bridge, whether it is looking at any project at all. It just does not seem to be able to manage these projects the way that one would expect them to and the way that South Australian taxpayers deserve. We have seen not a revenue problem but an expenses problem.

We see from the Mid-Year Budget Review that revenues improved in the seven months to the June budget but expenses continue to spiral. It has not been completely due to the global financial crisis although there are some issues that the government is having to cope with now, that everybody is having to cope with now. However, it is not brand new; it has been going on for seven years. It is a situation that has been created by the government and it is an opportunity wasted.

South Australia now carries the second-worst budget deficit in the nation with only New South Wales being worse off. New South Wales is an absolute basket case. If it had done what the Carr government wanted to do and what the Iemma government wanted to do—that is, to sell their electricity assets—that would have gone a long way to having eased that state's problems. But, no, just as the Labor government in South Australia was hell-bent on at the time and just as the union leaders and some of the power brokers thought they knew better, look what we ended up with: a massive state debt which, fortunately, the former Liberal government managed to bring back from the brink of bankruptcy. We got the AAA credit rating back and now it is all in jeopardy again.

The outlook for South Australia in the Mid-Year Budget Review is that it is now in deficit on all three measurements: all three are in deficit. In 2002 Labor stated that net lending/borrowing was the measure it would use for budgets. Unfortunately, because this measure subsequently slumped into deficit, the government discarded it and now uses the net operating balance measure. I understand that is not the one used by the federal government and it is not the one used by many other governments but it was the only one of the three that showed this government being in surplus. The other two were in deficit and now all three accounting measures—net lending deficit of $819 million, a cash deficit of $801 million, and a net operating deficit of $112 million—are in deficit and looking to get worse and worse.

The only white knight on the horizon for this government is the Rudd federal government, which I hope does not go down the same path as the Obama regime and the Brown regime in England, that is, indulge in quantitative easing, which is a very nice way of saying 'printing money; if you are printing more IOUs, they become worth less and less. My understanding is that, if we keep going down that path, we will have Zimbabwe dollars next, with hyper-inflation that will lead to massive interest rate rises, and the situation will become worse and worse.

As I have said, the only white knight is the Rudd government coming in and splashing cash around and bailing out this government. Certainly, I know the transport minister is holding his breath and hoping that his mate, Mr Albanese, the federal transport minister, will come up with some money to fund the transport minister's unfunded transport wish list. Personally, I, too, hope he comes up with the money, because it will make it much easier for me to make sure that our transport policies are realised because, if the money is there, we can then spend it. However, if the money is not there, what do you do? You would have some real issues, and some real priorities would have to be worked out. It will be an interesting and difficult position to be in, and I know that this state Labor government has no answers at present, other than to look to its big brother—Big Kev—in Canberra.

Also being bailed out by Mr Rudd are the health, education, housing and community areas. We are seeing 1,500 community homes being built, and I understand that 400 of these have already been included in the state budget, and things are being put in place to get them under way. The Rudd money coming in was to be for new things to stimulate the economy; it was not supposed to be for existing projects. However, the 400 homes were already on the books and were due to be started. So, another bail-out there. I really hope that the transport funding does come up, but I question the government's ability to deliver, even if that money ends up in the government's till.

There are many things I could say about the mismanagement and lost opportunities, including the situation involving the AAA rating. It just goes on and on. There are so many issues I could talk about where this government has failed, and I will continue to do so in my 10 minute grievance speech, when I will talk about some local issues in my electorate and some of my neighbouring electorates. However, I will leave it now to our leader to explain the true financial position in terms that I think even the Treasurer and the Premier will understand.

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (12:23): I rise as leader and as shadow treasurer and as first speaker to comment on the budget position in which the government finds itself. This Supply Bill comes to us after seven of the best years this state has ever seen but, regrettably, there is little to show for it.

The government has, during seven of the best years this state has ever seen, run the state into the ground. The government has hardly built a thing. It has cut a couple of ribbons, such as the Bakewell Bridge, and now we will see whether, hopefully, the Anzac Highway underpass along South Road is fully completed before the election. Other than that, the government has done very little. It is a familiar story, and it is one that ended the last time Labor was in office with the State Bank collapse, with an $11.6 billion debt and a current account deficit of around $300 million per year. Clearly, we are now heading in the same direction.

The Rann government's Mid-Year Budget Review reveals that the government has an expenditure, not a revenue, problem. Despite claims made by the Treasurer that his biggest problem is declining revenues caused by the global financial crisis, the numbers tell a different story. Revenues have improved in the seven months since the June budget, but expenses continue to spiral out of control, a point noted by the Auditor-General in successive reports. Poor financial discipline and poor management by government have landed South Australia in a financial pickle.

As a result, the government has embarked on a set of strategies that makes little economic sense, including: selling off buildings that it occupies and renting them back; selling 600 government employee houses at a low point in the housing market; reducing incentives for teachers, police, doctors and nurses to work in regional South Australia; and selling buildings that it does not even own, apparently, until that was pointed out by the opposition.

Mrs Redmond: The Treasurer has apologised for that.

Mr HAMILTON-SMITH: I note that the Treasurer has apologised but, in a sense, that issue says it all. How can a treasurer bring to the public a proposal to sell a building that he does not own? How can that be put forward by Treasury to the Treasurer? How can a treasurer then advance with that proposal to cabinet? How can cabinet then sign off on and agree to that proposal? How can that proposal then find its way into government policy and media releases, and then be supported under questioning by the opposition in the house, and be repeated again and again? It was a classic 'gotcha', and the underlying message it sends is: if you cannot trust the government and the Treasurer not to sell buildings that they do not own, how can you trust anything in their budget papers?

This same treasurer has deferred infrastructure that has a community value, such as new prisons, in a desperate effort to get his books back into budget. Anyone who has been in business—and I know there are very few of them on the government benches—will know that, in the good times, it is all about keeping your expenses under control and optimising your revenues, so that you can build the business for the future.

That is where the government has failed. It set out on a course seven years ago to tax and spend and to make hay while the sun was shining but without any sense that there would ultimately be an inevitable downturn that would leave it caught short. This government is continuing with infrastructure that has little or no economic benefit, such as the $162 million tram extension to the Entertainment Centre, while the River Murray and our water infrastructure are in crisis, while our health system urgently needs reinforcement and our teachers, in particular, are struggling for appropriate remuneration.

The Treasurer's statement is also strangely silent on the future of public-private partnership funding models at a time when financial analysts predict that future PPPs will require governments to carry ever more of the project risk, yet this government's budget depends upon such projects, supportable though they may be where there is a revenue stream, questionable as they most definitely are when there is no revenue stream and they must be sustained from a health budget, an education budget or a non-profit bearing source of revenue.

South Australia now carries the second worst budget deficit in the nation. New South Wales is the worst. New South Wales is a basket case and, clearly, this state government is heading in the same direction. By the end of its eight years in power, the Rann government will have built nothing of substance, will have saved nothing and provided nothing for the future. The symbol of those eight years will be a non-functioning, mini-wind turbine atop the State Administration Centre, which the government no longer owns.

The fiscal position and outlook is bleak. At the time of the Mid-Year Budget Review, there were budget deficits on all three accounting measures: a net lending deficit of $819 million in 2008-09, a cash deficit of $801 million in 2008-09, and a net operating deficit of $112 million in 2008-09. All of these have worsened since the Mid-Year Budget Review.

There is only one group of people who have bankrupted this state: this Treasurer and this Premier—two people not fit to occupy their posts. There is only one type of government that sorts out Labor's messes and that is Liberal governments. The Treasurer flees out of the chamber. Why don't you sit here for the remainder of the address? You love dishing it out, but you do not like taking it.

The Hon. A. KOUTSANTONIS: A point of order, Mr Acting Speaker. It is completely unparliamentary to reflect on members leaving the chamber.

The ACTING SPEAKER (Mr Piccolo): The leader will resume.

Mr HAMILTON-SMITH: I am glad to see that the member for West Torrens is now the champion of parliamentary standards. We will all be able to sleep safer at night in the knowledge—

The ACTING SPEAKER: Does the leader wish to continue on the Supply Bill or does he wish to take his seat?

Mr HAMILTON-SMITH: Thank you, Mr Acting Speaker. I just make the point that, if government members want to dish it out, we are more than happy. Nowadays, if you have a swing, we will come back with two arms. We are very much looking forward to the newly appointed minister's distinguished forthcoming performances.

In 2002, Labor stated that net lending/borrowing was the measure it would use for budget results. However, because this measure subsequently slumped into deficit, the government discarded it and now uses the net operating balance measure, an easier measure through which to run a surplus, but this too has now plunged into deficit. To which accounting measure will it now turn?

The 2008-09 Mid-Year Budget Review revealed that state revenues actually improved by $180 million since the 2008-09 budget handed down on 5 June, a point missed by many commentators, but expenses blew out by a massive $453 million. This government has an expenses problem, not so much a revenue problem.

The Rudd Labor government is covering the Rann Labor government's expenses blow-out. The state will receive a massive $429 million more from Mr Rudd in 2008-09 in health, education, housing and community service payments than it anticipated receiving in the 2008-09 budget. Since the 2008-09 budget state taxes are down by $48 million and GST grants have slumped.

The unfunded superannuation liability has blown out from $5.1 billion in 2006-07 to $9.3 billion in 2008-09. These blow-outs are driving the state's financial liabilities to levels which may jeopardise our AAA credit rating. But, no need to worry, along comes Mr Rudd, with that massive surplus built up by former Liberal governments, ready to bail out the states, as he has done.

This government has an expenses problem, not so much a revenue problem. I do not hear it talking about the windfall revenues it got from the GST during the good years. All that has vanished in this so-called collapse of GST revenues is the windfall surplus it had been receiving. This government has an expenses problem. It has trouble tracking its own budget forecasts. The Rann government is not as insulated from the financial market crisis as it would have had us believe when we first asked questions on this subject. For six budgets it has been running miniscule surpluses as a percentage of revenue. It certainly budgeted to run miniscule surpluses. Some of them exceeded its wildest expectations.

Where did the money go? It vanished. It vanished into trams. It vanished into bungled infrastructure projects. It vanished into a bloated and inefficient Public Service. Now revenue has grown more slowly than forecast, causing the state budget to plunge into deficit. The government is also being forced to scale back capital projects to substantially reduce debt in an attempt to keep its AAA credit rating.

A few weeks ago I visited Standard and Poor's with one of my advisers and a couple of my colleagues. It was amazing. I asked them what they relied on to make their ratings, and they said, 'The information the government provides us.' After I picked myself up and put myself back in my chair I said, 'Well, do you read the Auditor-General's Report?' They said, 'No.' I said, 'Well, I think we'll start sending you a copy, because I wouldn't rely on anything this government tells me if I was Standard and Poor's.' Clearly, based on recent pronouncements from Standard and Poor's, there is a review going on and the warning bells are already ringing.

The Hon. A. Koutsantonis: You want our rating to go down?

Mr HAMILTON-SMITH: No, I do not want our rating to go down. We worked laboriously when we were in government to get it back. It took eight years to sort out the mess, chaos and confusion of Labor, and just when we had done that work you inherited back the AAA rating, thanks, as was pointed out at the time, to tough decisions we made to fix up your mess. Now, in the space of seven of the best years we have ever seen, you have stuffed it up already. Here Labor goes again!

Returns on the government's invested assets under management are of concern. Funds SA, WorkCover and the Motor Accident Commission are all negative in 2007-08 as a result of exposure to declining international and domestic equity markets. In 2007-08, Funds SA incorporated the Motor Accident Commission's funds under management as well as a couple of other funds, which masked their total losses. Since 30 June 2008, notwithstanding revenue into and out of the fund, these funds have decreased significantly. Funds SA's investments of $14.1 billion have fallen by $3.7 billion. WorkCover's investments of $1.3 billion have fallen by $314 million. These losses total $4 billion and present a major risk to the state's finances going forward. And, of course, WorkCover, as has been revealed, is simply a basket case.

Let me address the question of our credit rating. South Australia's AAA rating is hanging by a thread. The state's net financial liabilities to revenue ratio is now in the vicinity of 87.3 per cent and forecast to reach 92.1 per cent next year. The Auditor-General's Report (Part C, page 54) states that the net financial liabilities to revenue ratio is not, however, declining towards that of other AAA-rated states as required by the fiscal strategy. That is the Premier's fiscal strategy. On 2 July 2008, Standard & Poor's stated:

If the net financial liabilities to revenue ratio did get up around that 80 per cent mark then we would be having a look at the rating and seriously looking at what else was going on with South Australia's finances. It's that 80 per cent mark that is...a hot button for us.

Well, the government has blown it—not only has it blown it, but it is on its way into the stratosphere. On 14 October 2008, Treasurer Foley himself said:

...the crashing of revenue has blown these ratios up into red light territory.

Well, how true. Interestingly, the Mid-Year Budget Review indicates that it is not the crashing of revenue that is responsible for our tenuously placed credit rating but the Treasurer's unbudgeted expenses. As I said, revenue has actually increased: it is expenses that are out of control with respect to this government. Curiously, Tasmania has an inferior credit rating of AA+ yet South Australia's liabilities ratio is worse than that of Tasmania. It seems that our AAA credit rating is at serious risk and, no doubt, ratings agency Standard & Poor's will carefully monitor the state's position going forward.

Let me turn the attention of the house to the question of revenue. From 2002-03 to 2007-08 the Premier and the Treasurer—incompetently, may I say—underestimated revenue collections every year. It was an embarrassment. One would look at what they said we would be getting in and every year there would be windfall surpluses. If you cannot estimate one's revenues, how can you estimate your expenses? For heaven's sake, if these people were running a business they would all be broke in two seconds.

During this time the government collected a massive $3.7 billion more than it expected. These revenue windfalls—actual receipts above budgeted receipts—are masking unbudgeted increases in expenses, as noted by the Auditor-General. The Auditor-General said:

The state has received very large amounts of unbudgeted revenues.

I have to say that the Auditor-General is a master of understatement: it was in the hundreds and hundreds of millions. And where has it gone? It has vanished down the drainpipe. What do we have to show for it? Nothing. We are now in terrible trouble, we are assured. Despite falls in GST revenue—

The Hon. G.M. Gunn: It won't take long.

Mr HAMILTON-SMITH: My good friend and colleague the member for Stuart said, 'It won't take long.' He was here to see it all. He had to sit through the agony of the State Bank. He has had to sit through the agony of seeing Labor governments bankrupt South Australia for over 30 years now—it might be 40 or 50 years, Gunnie; I am not quite sure. However, it was a very long time, and the poor fellow now has to sit here and watch history repeat itself yet again. Despite falls in GST revenue, South Australia has continued to receive unbudgeted revenues, as I have said, since the 2008-09 budget—this time, grants from guess who? The Milky Bar Kid—Kevin 07. The Rudd Labor government is throwing money at the state government like there is no tomorrow, using the surpluses accrued by the good and sound management of the Liberals in Canberra.

Let me give members a further elucidation of these figures and look at changes in selected revenue categories in the 2008-09 budget. As shadow treasurer, you always have a copy of the budget papers beside your bed with a lamp and a pair of glasses. If you are like me, you wake up in the morning thinking, 'I can't sleep. I'll read the budget papers.' So there I am every second night going through the relevant pages, and I saw this the other night. If you look carefully at the commonwealth grants, you will see that in 2008-09 Mr Rann and Mr Foley will receive a big fat cheque for $429 million from the Milky Bar Kid. In 2009-10 it will be $197 million; in 2010-11 it will be $77 million; and in 2011-12 it will be up to $220 million. It is nearly $1 billion, and that is just extra money. 'Here, take this, and off you go. Go out and have fun. Spend it!' However, if you look at the expenses it tells quite an alarming story.

Let me get back to revenue. Do you know all those tax cuts we have been told about? It is actually going up—revenue is going up each year, a stunning $119 million over the estimates period. Land tax is going up, despite the downturn. Yes, there are some forecast declines for GST revenue, taking away that cream, that unbudgeted extra that we have been receiving, but it will be more than compensated for by the cash handouts from Canberra. This government does not have a revenue problem; it has an expenses problem.

In regard to state taxes, an alarming story is unfolding. In the Mid-Year Budget Review, total state taxation revenue was $48 million lower than at the 2008-09 state budget. Notwithstanding this downturn, tax revenue is forecast to increase by 63 per cent from 2001-02 to 2008-09, as demonstrated by figures that the opposition has been constantly putting out for the people of South Australia to peruse. Payroll taxes, since this government came to office, are up 52 per cent; taxes on property overall are up 104 per cent; some categories of land tax are up 267 per cent; taxes on gambling are up 29 per cent; taxes on insurance are up 43 per cent; and motor vehicle taxes are up 35 per cent. This government is taxing South Australians into oblivion.

The severity of its tax regime in comparison to other states is confirmed by independent sources—it is not just us saying this. The Commonwealth Grants Commission has indicated that South Australia has levied its tax revenue basis more severely than any other state or territory during 2007-08. Labor's crowning achievement—the legacy it will leave when it is sent off into opposition, hopefully, by the good people of this state on 20 March 2010—is that it delivered the highest taxing regime of any state in the commonwealth. South Australians have been the most severely taxed each year under Rann Labor. In 2001-02 we saw the last year that South Australia was not the most severely taxing state—that was the last year of the previous state Liberal government.

The figures that I have drawn from the budget papers say it all. I have ratios that compare the actual revenue collections of each state to revenue each state would have collected if it had applied the taxation policies of the average state. Ratios above 100 mean a state taxed more severely than the average state, and ratios below 100 mean the opposite. When you look at the figures provided by the Commonwealth Grants Commission, we come in at 111.78 per cent. Queensland is well under the average at 85 per cent, and Tasmania is well under the average at 92 per cent. We are the highest taxing state in the commonwealth, and I commend to the house the tables provided by the Commonwealth Grants Commission in its report on the relative fiscal capacities of the states. I am happy to make them available to any member who wants to peruse them.

The South Australian government has been judged by the Commonwealth Grants Commission to have levied land tax more severely than the national average by 126 per cent, levied stamp duty more severely by 22 per cent and levied overall taxes more severely than the national average by nearly 12 per cent. In fact, South Australia taxed more severely than the national average in six out of the nine Commonwealth Grants Commission tax assessment categories.

I will talk for a moment about payroll tax under this government. If you are a business operating in Queensland, with a payroll of up to $1 million, you pay, guess what? You pay zip, nothing in payroll tax! If you are a business in Tasmania you pay zip, nothing in payroll tax. If you are a business in Western Australia you only have to pay $13,750 in payroll tax, but if you are in South Australia it is $22,400. It is absolutely striking. We have the lowest payroll tax threshold in the country and one of the worst payroll tax regimes in the nation. Despite all the huff and puff about improvements, they have been improvements from a very low base.

I was at an earthmoving small business the other day and was told that three out of every four items of plant on the Northern Expressway project, for which we are paying, are from interstate. Companies in Victoria, Western Australia, Queensland and New South Wales are coming over here and bumping off South Australian businesses for work on our major projects. Why would they not? They are paying less payroll tax and less land tax and have lower WorkCover levies. Their costs of doing business are significantly less than for South Australian companies. There is free trade between the states—why not come over and bump off South Australian companies in their own backyard? That is what is happening under state Labor. We do not oppose interstate trade, we do business interstate also, but the costs of doing business here—thanks to this government—for small business are painfully more difficult than in other states. Payroll tax is a good example.

Presently only 14 per cent of home buyers in South Australia are first home buyers—the lowest proportion of all the states—whereas seven years ago 21 per cent of home buyers were first home buyers. That brings me to the question of stamp duties. I wonder if members know how much stamp duty a struggling young couple, a low income person or a homeless person, who suddenly finds themselves in a position to purchase, will be required to pay on a $300,000 purchase. If you are buying in Queensland you will pay $3,000, but if you are buying in South Australia hand over $11,330. We are the worst of all the states, bar Victoria, which is around the same as us. If you go up further in value of the home, the figure gets worse.

South Australia has the most punitive land tax regime of all states as well. This hinders our interstate competitiveness for prospective migrants and businesses. Land tax revenue has increased by a massive 265 per cent under this Labor government. Congratulations! That is something you can say is a legacy to remember them by.

Mr Pisoni: Rann gets results.

Mr HAMILTON-SMITH: Rann certainly gets results and there they are for all to see. Guess how much land tax one pays on an investment property or business premises valued at $500,000 in Queensland? You pay zip, zero! Here one pays $1,700. If it is a $1 million property, which if you are a small business is not very much, you are paying $11,400 in South Australia. That same business in Western Australia would be paying $700. This is the crowning glory, the crowning achievement of Rann Labor!

The Hon. M.J. Atkinson interjecting:

Mr PENGILLY: On a point of order, sir, the Attorney-General is making audible remarks while not in his seat.

Mr HAMILTON-SMITH: You know, Mr Acting Speaker, they say, 'Well, gee, land tax has gone up. Well, gee, no; what on earth would we cut if we did anything about land tax?' By their own statements they reveal their fatal flaw. As they have swallowed the tax, they have let out their belt. As they have swallowed and gobbled down money out of people's pockets, they have just gotten fatter and fatter. They have spent it all. So, they sit around and say, 'Gee, our expenses are out of control. We've spent it all and, by golly by gosh, how do we do something about this?' All the same things they were saying when they delivered the State Bank mess, that $11.5 billion of debt and the $300 million deficit per annum—all of that. People are delighted with your land tax regime.

Let me talk about GST revenues. The state government has reneged on its promise to abolish the agreed state taxes in exchange for GST revenue. It will continue to levy two taxes on business transfers for an extra three years to prop up its coffers. In doing so, it will get an extra $142 million from long suffering businesses. This authorisation from the Rudd Labor government makes the Rann Labor government's coffers appear substantially better than they would otherwise. This is a new tax and a broken promise.

The Treasurer said on 30 November, 'I do rule out new taxes.' Let us see. Although GST revenues have been revised down, the commonwealth grants have been massively revised, as I said earlier, by $423 million in 2008-09 and almost $1 billion over the four years to cover the shortfall. Since the 2008-09 state budget, the government has revised down its 2008-09 GST revenue collections to a total of $1.55 billion over the forward estimates, but the Treasurer will still receive more GST revenue over the forward estimates than he budgeted for in those years when he was elected in 2006-07. Importantly, the actual GST revenues to the states relative to the pre GST arrangements have by far exceeded expectations back when the GST was introduced. The states are receiving far more revenue than they ever expected or dreamt of.

Let me turn the house's attention to SA Water. Total dividends and payments to the South Australian government from SA Water are budgeted to be $273 million in 2008-09. Since 2002-03, the total stripped from SA Water customers is $2 billion. Almost a third of everyone's water bill is going in general revenue and taxation into this government—

Mr Pengilly: Where's it gone?

Mr HAMILTON-SMITH: It has gone into trams; it has gone into a big fat Public Service; it has gone into overgrown and overrun budgets for major projects; it has gone into fat cats; and it has gone into consultants. It has gone into all the things which they whinged about when they were in opposition and in which they have now become exponents. Little has been made available from this water revenue for infrastructure spending. By 2010, Mr Rann will have taken around $2.5 billion from the water bills of South Australians, but, according to the Treasurer, those record SA Water contributions are not enough to fund the proposed desalination plant, which, by the way, was a Liberal idea—and one of many that they have grabbed in an absence of ideas of their own.

Expenses control has been dismal for seven years. I just repeat to the house: revenue is not a problem for this government. Keeping their expenses in control is the issue. No sooner does the money come in than it goes out the door. Here is what the Auditor-General said in 2007-08:

The state may have developed a culture of expecting growing revenues to continue to support increasing revenues.

I love the understatement of the Auditor-General. Certainly, he has been proved to be correct. The government has spent its windfall revenues on unbudgeted items—

The Hon. M.J. Atkinson interjecting:

Mr HAMILTON-SMITH: The Attorney-General says, with all the arrogance of a buffoon, 'Why don't the people judge us harshly?' I put to the Attorney, they may well do.

The Hon. M.J. ATKINSON: I rise on a point of order, sir. The Leader of the Opposition has flagrantly misrepresented what I said to the house—within 30 seconds of my saying it.

Members interjecting:

The ACTING SPEAKER (Mr Piccolo): Order! The leader will take his seat.

Mrs Redmond interjecting:

The ACTING SPEAKER: The member for Heysen will also take her seat; I do not need your advice, thank you.

Mrs Redmond: You probably do.

The ACTING SPEAKER: No, I do not. I can assure the honourable member I do not. There is no point of order. The leader will resume.

Mr HAMILTON-SMITH: For God's sake! Thank you very much, Mr Acting Speaker. If the Attorney-General wants to make a contribution to the debate, he can do so. I have talked of public-private partnerships. The Auditor—

The Hon. M.J. Atkinson interjecting:

Mr HAMILTON-SMITH: Perhaps the Attorney can get up and talk about stashed cash, perhaps he can get up and talk about financial management within the Attorney-General's department, and perhaps he can get up and talk about the Ashbourne corruption scandal. We would love to hear more. We would love to hear all that the Attorney has to say.

I talked about public-private partnerships. The Auditor-General recognised that the effects of the global equity market uncertainty mean that the cost of private borrowing has changed. I say to the government that these public-private partnerships on which it is engaged offer significant risk.

Public sector wage blow-outs have been well reported publicly. Full-time employment numbers have increased by 14,842 at least (probably more), raising questions about whether or not greater efficiency should have been maintained during the past seven or eight years. It is very hard to turn back the clock but, sooner or later, the government will have to stop that uncontrolled growth. Of course, there are slush and contingency funds and unallocated amounts of money that the Treasurer has tucked away. The Auditor-General revealed that the Treasurer has such contingency funding totalling $335 million (at least in his 2008-09 report), most of it probably gone.

Of course, we have had the shared services farrago, and we have had a consistent track record of a government failing to meet its savings targets, a point that has been consistently referred to by the Auditor-General. Labor's track record on debt is something to be watched. It is a shameful record, one which is increasingly heading north.

Unfunded superannuation liabilities now exceeding $9.3 billion are well above those which the government inherited and consistently heading north to stratospheric levels. All these unfunded liabilities of the government—superannuation, WorkCover (reported in the last few weeks at $1.3 billion, not counting the government's own scheme of around $400 million, at least, bringing the figure to $1.7 billion)—combined with its debt are cause for concern for all South Australians.

We have a government that, for seven of the eight years it has been in office, has squandered a great opportunity. It is an honour to serve the people of South Australia. You are here for a short time. When you are elected to govern you are elected to get things done. This government in 2002 could have chosen to manage its financial affairs efficiently, knowing that surpluses delivered by the former Liberal government would be coming in in subsequent years. It could have used those surpluses to bring about structural reform. It could have given us tax reform. It could have built infrastructure. It could have reformed the way in which government operates. It could have made significant reforms to planning much sooner. It could have made other significant structural changes to the way in which South Australia and its economy functions.

Instead, it wasted those seven years taxing and spending with no apparent theme or over-arching strategy to that spending framework. Now, we have the downturn, and this great opportunity of the last seven years has thus been wasted. This could have been a period that recast South Australia and set this state up for a prosperous future which would have fireproofed us from the downturn. Instead, that opportunity was lost. The government left itself exposed. It has little room to move now other than to hope and pray that money will continue to fall out of the sky over Canberra.

This government's legacy will be its failure to shape properly a future for this state during seven of the best years that this government and this state have ever seen. It has not done much but it has ruined the state economy.

Debate adjourned.

[Sitting suspended from 13:00 to 14:00]