Bills

Supply Bill 2021

Second Reading

Adjourned debate on second reading.

(Continued from 31 March 2021.)

The Hon. D.C. VAN HOLST PELLEKAAN: Mr Speaker, I draw your attention to the state of the house.

A quorum having been formed:

The Hon. S.C. MULLIGHAN (Lee) (12:04): I am grateful to other members rushing down to hear my contribution. I rise to speak in support of the Supply Bill. I indicate that the opposition will be supporting the Supply Bill and also that I am lead speaker on behalf of the opposition.

This year's Supply Bill reverts to somewhat more normal circumstances, where the government seeks supply only for a certain period in order to give both chambers time to pass the budget and for it to be assented to, that period being four months and just over $6 billion being sought in supply. This is of course quite different from the circumstances of last year relatively early on in the COVID pandemic, when the government sought effectively a year-long blank cheque for $15 billion in order to continue superintending the affairs of government in the face of the coronavirus pandemic.

The budget that is due to be handed down in only a few weeks' time will be important for this state government and for the state. It will be important for the state government because it will be a last ditch attempt by this government to try to reset the state's economic fortunes before the next state election. The problem we have is that we have entered into the coronavirus pandemic with the worst performing economy in the nation.

In the 2019-20 financial year, our state's gross state product growth, our key measure of economic growth, was the worst in the nation, the worst of all the states and territories by a substantial margin. Our economy contracted by 1.4 per cent, a very significant contraction, a very significant recession, and like the rest of Australia, the first recession our state has entered into for nearly 30 years.

We started battling the coronavirus in an economic sense behind the eight ball. We see ourselves now in South Australia the third month in a row with the highest unemployment rate in the nation. We have the highest youth unemployment rate in the nation. Alarmingly, and almost in unprecedented fashion, not only does South Australia have the highest unemployment rate in the nation but we have it at a time when we have the lowest participation rate in the nation as well.

Usually you would expect a state or territory's unemployment rate to increase as its participation rate increases, the participation rate being a measure of those adult South Australians of working age who are either working or seeking work. If more people are working or seeking work, the participation rate increases and that usually is correlated with an increase in the unemployment rate.

What we see here in South Australia is the frightening scenario where fewer people are participating in the labour market, fewer people are working and fewer people are looking for work, yet we still record the highest unemployment rate in the nation. That is clearly an indictment of how this government has sought to support the economy of South Australia.

Remember that it was only a little while ago that, in delivering their first budget in 2018, the Treasurer and the Premier, echoing soon after, thumped their chests about how proud they were to cut 29 job creation and job sustainment programs previously funded by the former state Labor government, and now we have the results, the fruits of that labour. Now we have more South Australians who are either in work or seeking work, the lowest participation rate in the labour force.

We have the highest unemployment rate and, troublingly, those people who are first embarking on their careers or first embarking on paid employment, young South Australians, are also suffering the highest unemployment rate in the nation. Even worse than that, we are the only state to have lost jobs since the coronavirus pandemic commenced here in Australia.

We are the only state in the nation that has gone backwards in the number of people employed since the last Labour Force Survey before the pandemic, since March 2020. This is a dreadful record that our state has on jobs thanks to this Marshall Liberal government. It is now taking South Australians the longest median time to find a job when they are able to find a job. It is now 26 weeks (or six months). That is the median wait for a South Australian to find a job when they are looking for it. We are now down to fifth place in the CommSec State of the States report, which is released on a regular basis.

Government cannot be expected to do all the heavy lifting when it comes to employing South Australians. Usually, we would have somewhere in the order of 840,000 or 850,000-odd South Australians employed. As you would be aware, Mr Speaker, approximately 100,000 of those in part-time and full-time roles are engaged within the public sector. That, of course, means that the balance of those people—some three-quarters of a million South Australians—find their employment in private business. It is the business community that we will all be looking to to try to add jobs as quickly as possible to try to drag our state out of recession and drag us out of the unwanted achievement of having the highest unemployment rate in the nation and the only state to have lost jobs since the COVID pandemic began.

However, it is the business community here in South Australia which, against the grain, despite the trend around the rest of the country, is recording falling business investment levels. Business investment in recent months has taken off around the country. Businesses are feeling more confident around the country, and they are backing that confidence with investment decisions—decisions to spend their own capital to improve, expand or make their operations more productive.

That is the way that we can most quickly add jobs here in South Australia: by the business community choosing to employ more South Australians, adding more capacity to their businesses. But the reverse is happening. Not only is our state going backwards in the overall statistics but the main sector of the state's economy, the business community, is choosing to withdraw its investment in adding capacity and hence adding jobs. No wonder there has been significant pressure on the Premier and this government to try to provide some support for the state's economy.

I just mentioned that in its first budget it was thumping its chest about cutting 29 job creation and job sustainment programs across South Australia, the majority of those programs put in place to deal with what was expected to be the economic shock of the closure of Holden's manufacturing operations. Those programs put in place from 2015, 2016 and 2017 onwards were hundreds of millions of dollars of state government support to try to support employment across the state's economy. Did it work? The annual employment growth rate in the last financial year that you could attribute to the previous Labor government, in 2017-18, was 2.4 per cent. It has been falling each financial year since.

It is no coincidence that when those cuts were made in the first quarter of the 2018-19 financial year—that is, from the middle of 2018 onwards, when that first Liberal state budget was handed down; that is when those job creation and support programs were cut—that is the point in time when our jobs growth across the South Australian economy started going backwards.

That is the record that this state Liberal government have on our economy and in particular on creating jobs in the South Australian economy. They have proudly cut support to the South Australian economy, and they have done so in a way that has massively throttled back our jobs growth to the point where we are now, in the most recent financial year, not only experiencing a recession but also we are the only state government to have lost jobs since the beginning of the COVID-19 pandemic.

The government would have you believe that they are doing above and beyond what is necessary when it comes to stimulating the state's economy. The Premier was quick to boast in March of last year that his government was the first government to release an economic stimulus package. He told us at the time that there would be $350 million of stimulus funding, funding specifically designed, decided and attributed to those efforts to stimulate the economy. The only problem was that it was not stimulus funding at all.

The vast majority of it, in fact nearly all of it to a dollar, was existing funding already committed by the Liberal government across various government portfolios spread out across the next four years, which had been hastily rebadged as an economic stimulus package in order to answer calls from the opposition and the business community about what the government was going to do to support the South Australian community in the face of the COVID-19 pandemic.

The examples, of course, were obvious. Moneys that had already been announced and allocated towards the rehabilitation of Flinders Chase on Kangaroo Island to recover from the bushfires was money that was suddenly packaged up as being economic stimulus. Money that was already going to be spent, which had already been factored in by this government and was already part of their forward fiscal and economic forecasts, was suddenly being rebadged as economic stimulus.

They highlighted a range of road projects, in particular road maintenance and rehabilitation projects, which they claimed were economic stimulus. We were told these projects would be fast-tracked. Remember, this is late March last year. It is now early May the following year and the vast majority of those road maintenance projects have not even started. South Australians in the north-western suburbs would like to know what happened to the full resealing of Port Road.

It was bad enough that the former transport minister, the transport minister who had to resign from his position, delayed the delivery of the upgrade of the West Lakes Boulevard, Cheltenham Parade and Port Road intersection by more than two years after it had been not only committed to but funded in the state budget by the former Labor government. We were given a commitment that Port Road would be resurfaced and here we are 14 months on from that commitment and there has not been any progress.

This is something ringing true across all those funding lines of that claimed $350 million. There was some routine capital maintenance money for country hospitals already factored in, already budgeted for, by the state Liberal government that was suddenly repackaged and repurposed as being economic stimulus. If money was already going to be spent, if it was already being counted on by the government as being spent in both their fiscal forecasts and their economic forecasts, and if the business community had already been made aware of that money being spent some months or even years previously, how can it possibly be economic stimulus?

Of course, the obscuring of what a real economic stimulus effort would be continued in May. The government then told us that there would be a further $650 million to add to the initial $350 million of economic stimulus, and in this regard I will pay the government some credit. After further calls, following delays from the state government about what they could do to directly help small business in South Australia, finally they acceded to calls from the business community and again the opposition and started to provide some direct assistance to the small business community.

I remember standing with the Leader of the Opposition, the member for Croydon, in the foyer of the Kings Head Hotel on King William Street in the city, saying, 'If the government doesn't start helping small businesses, particularly those small businesses that have been forced to shut their doors to patrons, such as those in the hospitality industry, there will be closures.'

We called on the government to set aside $200 million specifically for the hospitality and tourism industries. That call was ignored, and what have we seen since? Dozens of small businesses, if not many more, particularly hospitality and tourism businesses, have closed their doors and many small business operators have not continued operating.

Perhaps those premises, like the Kings Head Hotel, have managed as a premises to be rebirthed by new owners, but that is cold comfort to those people who lost their livelihoods and those employees who lost their jobs in the meantime. However, in that $650 million, the state government did provide some small business grants.

I want to spend a little time talking about the government's Small Business Grant Program because it came in two doses. The first dose was for those businesses that were eligible for the federal government's JobKeeper program. Think about that: we have small businesses that had already qualified for the federal government's wage subsidy scheme, a scheme where the federal government, up to limits, would pay the wages of a business's employees—a huge lifeline and something I have recognised in this place and also outside this place many times, saying that it was a good decision by Josh Frydenberg and the federal Coalition government.

But the state government chose, in providing assistance to small business, to double-down on those businesses that were already in that position. They did not choose to allocate their resources to those businesses that were not eligible for JobKeeper. I am not talking about those businesses that did not need JobKeeper, that did not have a 30 per cent reduction in their turnover; I am talking about those businesses that for other reasons were unable to qualify for JobKeeper. Their businesses were suffering, they did not meet the JobKeeper criteria and hence they were not entitled to any support.

Those small businesses in South Australia that were able to get access to JobKeeper could now have additional support from the state government. In the meantime, tens of thousands of sole operator businesses here in South Australia missed out on any support—not eligible for JobKeeper, not eligible for the state government's Small Business Grant. Immediately, of course, the small business community here in South Australia cried out for support from the state government and a rethink about how its Small Business Grants were to be allocated.

Of course, as is the way in which this Premier and Treasurer treat people who raise questions with their decisions, they were given short shrift and the cold shoulder. Eventually, it became clear, if you read the daily newspaper or listened to talkback radio and call after call after call from those people in financial dire straits, small businesses and small business operators, that they needed better targeted support from the state government.

The state government's second round of Small Business Grants sought to achieve this, not only by continuing an additional round of $10,000 grants, including grants to those businesses that already successfully received a grant in the first round so they can have up to $20,000, but by extending a smaller grant of $4,000, I think it was, to sole operators. Of course, I am not going to say that was not a worthwhile decision—obviously, any support is better than nothing—but it was support that came several months after the initial announcement and allocation of the first round of Small Business Grants.

I just want to say a couple of things about the Small Business Grants and their accessibility, particularly as they relate to small businesses in my electorate. I was contacted by a number of people who for various credible and easily defensible reasons were unable to access those Small Business Grants. They were otherwise eligible, but they were perhaps confronted by circumstances which prevented them from applying for the grants in time, or they successfully applied for the grants in time but were unable to furnish perhaps some paperwork that was required of the Treasury and RevenueSA in assessing the grants.

Several of these businesses contacted me and said that they had been denied these grants. It seemed clear to me on the face of it that there was a role for government to play in providing some discretion in extending this grant scheme insofar as it would allow some of these businesses—and we are not talking thousands of businesses; we are talking a much, much smaller number—access to this financial support.

The response they got back from the Treasurer and the Premier was clearly a form letter written to them without much sympathy or empathy for the position that these small business operators found themselves in. It was basically a form letter which said, 'Unfortunately, we've got to apply the rules evenly, and if we do it for you we will have to do it for others. That's why we won't be exercising any discretion.' That was the basic flavour of the letters that went to those small business operators.

If the Small Business Grant scheme had been fully expended, perhaps you could understand that. But, as the most recent budget papers show, funds have been established by the state government ostensibly to respond to the economic needs of the community during the COVID-19 pandemic that remain not only unspent but also uncommitted. I find it extraordinary that either the Premier or Rob Lucas in the other place would not allow themselves some discretion in order to meet the reasonable requests of members of the community who were doing it tough during the COVID-19 pandemic.

As I am sure other members who have been put in similar situations by government ministers would know, it is heartbreaking to have to sit with constituents after making their representations for them, after helping them in every way that is possible for a member of parliament, and still you are unable to achieve for them the support they need in order to continue their businesses. It is a really regrettable footnote in this saga of how the state government has managed the COVID-19 pandemic.

As I said, there are still substantial funds—more than tens of millions of dollars—available to this government that remain both unallocated towards a specific purpose let alone unspent out in the community. When those funds are languishing, committed for economic stimulus but gathering dust in Treasury, then I think small business owners, like those constituents of mine who have contacted me, have every right to feel aggrieved and angry about how they have been treated, particularly by the Treasurer.

In response to the economic circumstances that our state finds itself in, we have the repeated line of the government, the Premier and the Treasurer that there is nothing to see here, that there is in fact nothing wrong at all. In particular, the Premier and the Treasurer have been leaning on a set of statistics that have only recently been produced by the ABS, described by the ABS itself as experimental, and these are the weekly payroll jobs and wages data published each fortnight. They are able to be published because of the new initiative of the Australian Taxation Office of a single-touch payroll system.

It is important to remember that not all businesses, let alone small businesses, have registered with the single-touch payroll system. Unlike the Labour Force Survey, which surveys a sample of the entire electorate about who was employed and the nature of their employment or otherwise, here we have a select group of businesses that have registered for a particular tax office system from which the ABS is able to produce data that this Premier and Treasurer rely on.

It is a concern that when you log into the ABS website and you click on the weekly payroll jobs and wages data and scroll down on the first page that you come to, there is a disclaimer from the ABS that this data is experimental and that it should only be read in conjunction with the more comprehensive—in the ABS's words, not mine—labour force data. So we have the Premier and the Treasurer ignoring the labour force data and instead choosing to rely on an experimental dataset, which even the ABS itself distances itself from, as being rigorous and covering a representative sample of the economy.

The problem here is that, if the Premier refuses to believe that there is a problem with our jobs market, if he refuses to believe that there is a problem in the state's economy, then of course he will not set about the task of doing something about it, he will not be focused on recognising the problem, considering how best to address the problem and getting on with the job of doing something about this problem. That is the thing I found most concerning about the Premier's response to the economic crisis our state is in at the moment.

I will give an example. One of South Australia's proudest brands, the West End Brewery, owned by a large beer conglomerate Lion Nathan, announced late last year that they will be closing the brewery at Thebarton. That will have not quite the same economic impact as the closure of Holden, but to the state's collective psyche, perhaps it is not too far out of the same league. This is one of our state's proudest brands; this is a company that has provided jobs for South Australians for many, many decades—more than 100 years—in a similar way to which Holden has.

Yes, admittedly, given over recent years and decades, and perhaps also because of the successful refurbishment of the brewery in 2013 (you only have to drive past it on Port Road to see the vast copper vats that have been erected behind deliberately see-through panes of glass so that people can see the beer actually being made), and perhaps because of those efforts, the brewery has become more efficient, more productive, more automated and has fewer people working there.

Nonetheless, when Lion Nathan and its subsidiary West End announces that it is going to cease operations here in South Australia, the response from the Premier and the Liberal government was a shrug of the shoulders: 'Oh well, it's a shame, but what can you do?' When business closed under the previous Labor government—and of course I give the example of Holden announcing that it was closing its manufacturing operations, and of course many of its suppliers then having to close their manufacturing operations here in South Australia—it was usual that those companies and their executive teams reached out to the government of the day to let them know what is coming, to let them know of an impending decision that is to be announced.

Of course, the usual response, at least from the former Labor government, is, 'What can we do; is this decision avoidable; is there some support that the government could provide in order to help you maintain your manufacturing operations, your manufacturing operations that are of course so important to the employment of so many South Australians and such a large contribution to the state's economy?'

I am pleased to say that, in some instances under the former Labor government, some of those conversations were productive. Some of those automotive component suppliers were able to repurpose their manufacturing operations to the extent where one of them, for example, a company that was producing rear axle subframe assemblies for cars being built at Holden's plant at Elizabeth, are now gearing themselves up to manufacture buses for use in the state's public transport fleet, and perhaps one day hopefully beyond that for private buyers as well.

I wonder, did the Premier ask that question of Lion Nathan? If we have a brewery here in South Australia, a modern, refurbished brewery, one that had undergone a significant improvement in its capital equipment and operations less than 10 years ago, is operating well under capacity, rather than choose to close it and move the brewing of West End beer and other products from Adelaide to another Lion Nathan-owned brewery interstate, could there be any consideration of, instead, moving the brewing of some of those interstate beers here to South Australia to West End's underutilised brewing?

I know what the answer is, of course, because my understanding is that that question was put by members of the media to the Premier and there was, as is his way, a vague and noncommittal answer. I find that really disappointing. It may not be a source of pride for South Australians, perhaps at one point in the future, to be the brewers of beers like XXXX. Nonetheless, if it employed South Australians, if it meant that there would be not only direct jobs at the brewery but also jobs elsewhere in the supply chain, that could only be a good thing.

The fact that news like that is greeted with a shrug of the shoulders from this government rather than some level of effort to either try to stave off the decision or perhaps provide some support so that such a company could modernise, gear up its operations, employ people in the future, I find gobsmacking.

It was not long afterwards that we heard effectively the same announcement from Schneider Electric, which used to be known as Clipsal in South Australia, that they had made the decision not to retool part of their manufacturing operations in Adelaide's northern suburbs, would no longer be making several hundred different types of plastic products and instead would be moving the production of those products interstate or overseas.

If a company like Schneider Electric—which as I mentioned used to be called Clipsal, and of course we all know Clipsal used to be owned by a prominent South Australian, one with close relationships to the political class in South Australia—is going through a decision-making process about whether or not they go to the effort of retooling and there is a marginal decision being made that it is not in the company's interest and the government of the day is told about that decision and that it would impact many jobs in South Australia, would you not think, as a government, to get around the table with this company to see how, once again, we could try to stop the increasing decline of the manufacturing sector in the state's economy?

Apparently not, which I find, as I say, not only gobsmacking but also galling. If you look at the state budget figures, now is the time when governments of any persuasion have effectively a licence from their communities to spend up big to protect jobs, to use government resources to spend taxpayers' money to try to keep people in jobs, to try to support businesses that can provide employment—sustainable, well-paid jobs preferably—and help communities recover from the COVID-19 pandemic and the recession that it has caused.

Indeed, in this financial year alone the government was expecting—and I say 'was'—to record a net operating deficit of in excess of $2.5 billion, an unprecedented deficit at any time in the state's history. The previous net operating deficit record of nearly $1.5 billion was only recorded in the immediate financial year before. In the ordinary course of events in more ordinary times, the South Australian community—any community around Australia—would be aghast at such deficits, but there is a recognition that we are in unusual times. We are facing a health crisis, which of course needs to be combated, and as a result of that health crisis we now have an economic crisis.

So the permission is there from the community for the government to spend in order to support the economy, in order to, in this way, support jobs. I find it surprising that we have a Premier, who, with an announcement for a media event one year out to the day of the next state election, can announce an uncosted, unbudgeted and allegedly somewhere in the order of $700 million basketball stadium but cannot find those funds to continue supporting manufacturing operations in South Australia.

Perhaps that is a segue to talk about some of this state government's record when it comes to budget management and budget priorities. Those deficits—the 2019-20 deficit of nearly $1.5 billion and the current deficit, most recently forecast at over $2.5 billion—follow what we know as the 'manufactured surplus' of the 2018-19 year, the only financial year in which this state government looks like they will achieve a surplus, and the only financial year in which Rob Lucas as Treasurer, either before the former Labor government or since the former Labor government, will have recorded a surplus.

What did he have to do in order to record that surplus? He had to do a significant amount of money shuffling, both deliberately retiming revenues to be received by government and also moving around expenditures to be made by government in an effort to record, for the first and only time in his political career, a budget surplus.

In the current context, of course, you may find that to be uncharitable. In the middle of the COVID-19 pandemic, when the federal government is running deficits of hundreds of billions of dollars and state governments are running deficits in the billions of dollars, you may find that to be uncharitable.

Of course it is, and I do not say that the state government should have recorded a surplus last financial year, given that the last three months, or maybe even a little more, of that financial year were impacted by the pandemic, that within the course of six weeks we had lost in the order of 50,000 jobs and that we had had the forced closure of tens of thousands of businesses across the state. In that context, I do not say that we should be running a surplus and, in the context of wanting to provide a level of economic stimulus as we recover from the pandemic, I do not say that the government should have run a surplus in the current financial year.

However, in Budget Paper 3—handed down each year in the state government's budget papers—in the appendices towards the back are the tables that outline the historic budget metrics going all the way back, conveniently, to 1997. In 1997, not only did John Olsen make the best fist of trying to lose the unlosable election in state politics but they formed government for a second term and Rob Lucas moved from being education minister to being Treasurer.

It was the time, of course, when, after saying, to quote John Olsen, that they would 'never, ever privatise ETSA', immediately after the election they set about the task of privatising ETSA. They also said at the 1997 election—those in the chamber a little older than me might recall—that they would never, ever introduce a mandatory fire services levy. Of course, straight after the election, Iain Evans, the minister then responsible, set about introducing what we now know as the emergency services levy.

Despite that little digression, those first four years of Rob Lucas's time as Treasurer recorded four deficits. Imagine going through the process of selling ETSA for $3.4 billion and over the same period recording net operating deficits of $1.3 billion and increasing state debt by approximately a little over a third of what you had just sold ETSA for in order to pay that debt down, net operating deficits as well of $1.1 billion. So that 2018-19 year will be not only the year that Rob confected a surplus but the only year he made a surplus as state Treasurer.

The thing that has a lot of people scratching their heads, if not directly worried, is the extraordinary escalation in the state government's net debt position. At the end of June 2018, perhaps where you could best draw the line between the former Labor government and the new Liberal government in financial terms, the state's general government sector debt was $5.4 billion. Remarkably, within a period of only two years that debt escalated to $10.5 billion, an increase of almost 100 per cent, and even further an increase in debt expected by June this year to $15.2 billion.

If you walked down Rundle Mall or another fairly busy street anywhere in South Australia and you told a member of the community that that debt had been increased in pretty much the blink of an eye by $10 billion in the general government sector of the state's budget, I am sure they would express surprise—an increase of 200 per cent in the state's level of indebtedness of course would cause surprise.

However, perhaps that surprise could be ameliorated if you could then point to all the things that debt had been incurred for, if you could point to all the acquisitions that money had been borrowed for and if you could point to all the projects that money had been borrowed for in order to deliver. And the problem that the government has is that they cannot really point to any projects of any substance that have caused in two years' time debt not only to double but in three years' time for it to triple.

Think about this: the major infrastructure projects that have been delivered in the last three years are projects that were substantially completed by the former Labor government, and I am talking about projects like the Torrens to Torrens project, the Northern Connector project and, before it started encountering difficulties under the new leadership of the transport department, the Darlington project. The vast majority of funds across those three projects had already been expended by the time these financial years kick in and debt starts escalating.

The other major projects that you might cast your eye about around South Australia are the Regency Road to Pym Street, South Road upgrade, the duplication of the Joy Baluch Bridge and the Gawler electrification project, which are all projects that were committed to and money was allocated for in the state budget by the former Labor government. So then it really becomes curious, doesn't it? How on earth could debt have tripled in three years and on what has it been tripled for?

In fact, on the drive in here this morning I was listening to talkback radio and I heard one prominent Adelaide media and political commentator make that exact point. It is very difficult to know why the state government have racked up so much debt, and remember I am talking about in the period before COVID, before the period of time when the government tell us that they are spending what they claim to be $4 billion worth of stimulus money to go into the South Australian community.

It is a difficult question and one which has been asked of the government and one which they have not been able to answer. The only answer that the Premier has been able to provide to this place is a wave of the hand, an ostentatious, 'Go and get a briefing,' as he is wont to do when, of course, it is he actually who needs the briefing.

We have a massive escalation in this state's level of indebtedness. Of course, it does not stop there. If you look across the most recent budget's forward estimates, that level of debt will continue to increase by roughly a similar quantum across the remainder of the forward estimates until we are told that, at the end of June 2024, the general government sector debt will reach $24½ billion, and across all areas of government, including those publicly owned trading corporations, the level of indebtedness will be $33.1 billion.

The government says, 'It doesn't matter. Money's cheap,' and that is true: it is cheap now. In fact, it is extraordinary that the level of government borrowing has increased so substantially yet the interest costs, the debt-servicing costs, on the state budget have actually gone down. It is a remarkable circumstance where debt can be increased by so much but the cost of servicing that debt can actually fall in nominal terms, which means that there is less of a burden on the budget now to service a higher level of debt than there was previously to service a lower level of debt.

Of course, the assumption in all of this from the government is that interest rates are low, government borrowing rates are low as a result of the long-term bond rate, and so we should borrow and we should get while the getting is good. The question you have to ask is: for how long will it remain good? We all hope, do we not, that there will be a strong economic recovery? We have seen areas of extraordinary recent economic activity in, for example, the mining sector, particularly in Western Australia and Queensland, and in the housing sector across the country stimulated by the federal government's HomeBuilder scheme, and we all hope, of course, that that huge increase in activity in those two sectors is something we will see across other sectors and that we have a general economic recovery.

In a general economic recovery, what do we expect to see? We expect to see movements in official interest rates and hence movements in borrowing rates, both for governments and consumers, and increased borrowing costs. Maybe the most recent advice from the Reserve Bank of Australia is correct, that we can pretty much bank on (pardon the pun) interest rates to remain low for the next three years. If that is the case, then the forecasts in the most recent state budget should pretty much hold firm over the next three years, because that is how far they go out. They go out from now, in May 2021, for another three years until June 2024.

The question we have to ask ourselves is: what happens after that? Do we expect a general economic recovery and, if we do, do we think that there might be in any realm of possibility an increase in interest rates? Do we expect that, if there is a strong economic recovery, the increase in the interest rates might not be singular but plural? Rather than an increase of a one-off of 15 or 25 basis points, maybe over a period of time over the medium term, maybe over the period of a number of years, interest rates might increase by 50 basis points or 100 basis points, say three or four increases of 25 basis points spread over a few years. Because, if that is the case, then we should be aware of what the impact on the state budget will be.

You only need to look at the risk statement included, again in each year's state budget, to know what that risk is: an increase of 1 per cent or 1 percentage point would have the impact of increasing our debt costs by about $250 million a year. That is a lot of money. That is $250 million that will be required to be taken from other areas of government expenditure or from growth in revenues from the state government and, rather than be put into frontline services or other cost pressures across government, be put into debt repayment costs.

That is something that we should all be worried about because, if you will consider that scenario, where over the medium term—perhaps beyond three years, perhaps over the next five years that we do start to see interest costs and hence those debt servicing costs in the state budget increase—you would hope, would you not, that there is not anything else that goes wrong with the state's finances?

But there is something that is going to go wrong in the state's finances, and that will happen from 2026 onwards. Even as I say it, 2026 sounds like a long time away, but it is not really. It is only five years away. After the next year and the March 2022 state election, it is only the end of the next parliamentary term. It is only really in a couple of budgets' time that we will start to see the figures represented in the budget's forward estimates.

From 2026 onwards something quite significant happens to the state government's revenues. That is when the short-term guarantee—which was put in place when the Premier and Rob Lucas signed away our robust, defensible and important GST deal in favour of a much lesser guarantee of GST revenues in favour of South Australia—from the federal government that no state will be worse off under those changed GST arrangements expires.

Our GST guarantee expires from 2026 onwards. That is important because it means we will no longer be getting the fair share of GST revenues that we have enjoyed now for 20 years. It means that there will no longer be an equitable sharing of the GST pie, based on both population relativities and the needs of providing a reasonable level of services across the country.

That fundamental basis of distributing the GST pie has now been removed, or I should say it has been watered down. In fact, I will not say watered down; I will say it has been hosed down and, rather than taking the assessment which we used to take, we will now make the entire GST system based on a relativity which places the performance of the Victorian and the New South Wales economies and budgets paramount. That means our GST share will go down from then on.

So we hope that, with a strong economic recovery across the country, we will see here an increase in our debt servicing costs and at the same time will see a reduction in our GST levels. You do not have to take my word for it, that is the official Treasury advice, the Treasury advice that I have previously read into Hansard, the advice that was provided to the current Treasurer, Rob Lucas, and presumably to the Premier before they signed up to that deal. That is deeply regrettable. We all know that Rob is retiring at the next election and, regardless of the result, the Premier will not be far behind, but for those of us who remain, it will be up to us to deal with the consequences of this. It will be up to the rest of us to deal with it.

You only have to read today's paper or listen to today's morning radio to understand that services in South Australia are under pressure. It is reasonable to assume that, just as we have increased the health budget over the last 15 or so years from less than $2.5 billion a year to more than $6.5 billion a year, that trend is going to continue, that there will be a need to continue to pump more and more resources into those frontline services which South Australians expect from their state government, regardless of which political persuasion they hold.

When we have an increasing cost burden elsewhere to service debt and a threat to our ongoing revenues, that does not augur well for the state going forward. I am very concerned that we have a budget now that we are told will be this government's response to the current challenges ahead for our state and that we do it, as I mentioned, not only from the economic perspective but from the fiscal perspective so far behind the eight ball.

When we are running such significant surpluses, ostensibly we are told by the government to try to respond to the COVID-19 pandemic and the economic challenges that it has created, it does not provide much capacity going forward to meet the challenges of tomorrow, unless the government makes a decision that there will not be a path back to surplus and that there will not be an attempt over the medium term to start trying to reduce government's debt burden.

If we are taking that decision, if we are perhaps going to enter into a post-1990s era of US-style budgeting where we have no heed of surpluses—I seek leave to continue my comments at another time.

Leave granted; debate adjourned.

Sitting suspended from 12:59 to 14:00.