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House of Assembly - Fifty-First Parliament, Third Session (51-3)
2008-11-11 Daily Xml
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STATE BUDGET

Mr HAMILTON-SMITH (Waite—Leader of the Opposition) (14:23): My question is to the Treasurer. What is the current status of state government budget revenues? The Treasurer told the house—

The Hon. P.F. Conlon interjecting:

The SPEAKER: Order! The Minister for Transport will come to order.

The Hon. M.J. Atkinson interjecting:

The SPEAKER: Order! The Attorney-General will come to order.

Mr HAMILTON-SMITH: The Treasurer told the house on 14 October that the 2008-09 budget was short $280 million, including $150 million in superannuation unfunded liability costs, $100 million in lost state taxes and $30 million in lost GST revenues. On 5 November the commonwealth government put the GST shortfall to this state at $127 million—more than four times worse than the Treasurer's estimate. In recent weeks other states have revealed downturns in property tax revenues beyond ratios revealed so far by the Treasurer. Since 14 October, the house has also heard that superannuation unfunded liability now exceeds $10 billion and the WorkCover unfunded liability is in excess of $1 billion.

The Hon. K.O. FOLEY (Port Adelaide—Deputy Premier, Treasurer, Minister for Industry and Trade, Minister for Federal/State Relations) (14:25): Firstly, on the GST revision, we have made an estimate, and when making that estimate, we put in a provision. We thought probably $30 million. However, clearly the onslaught of the world economic crisis is hitting Australia, as it is every other part of the globe, and therefore the commonwealth has revised down its economic growth forecast for the country. In terms of GST receipts, my advice is that we will see a further deterioration of $131.1 million for 2008-09, a $183.8 million deterioration for 2009-10, a $197.3 million deterioration for 2010-11, and a $230 million deterioration for 2011-12. That is a combination of the earlier provisioning that we had made and a subsequent revision of commonwealth revenue.

What concerns me, as I have said publicly, is that it may get worse. We do not know what the final impact of the world economic crisis will be: as the contagion effect impacts on all nations, no-one is immune from it. Can I say in terms of property that we have made significant revisions down in terms of property turnover—a slight softening in value but not a noticeable softening in value at this stage. What I should say is that, indeed, our housing market relative to the nation is holding up very well, and that may well be the reason why you are seeing a more significant revision downwards in other parts of the country compared with what we are seeing here. We still have a very tight rental market.

As the Premier has just indicated, performance in our job market remains very strong. We have significant advantages in our economy that other states do not have. Of course, we have the air warfare destroyer project which is starting to accelerate early in the next calendar year and which has substantial employment positives to it. We still have a very strong manufacturing sector, notwithstanding the obvious global pressures and domestic pressures on our auto industry, but, at this stage, we still have significant commitments in the mining sector. BHP Billiton, whilst not in position yet for final board sign-off, has clearly indicated that it is all systems go in terms of its planning for the expansion of Olympic Dam. I have had discussions with Marius Kloppers, as has the Premier, and we are confident that, notwithstanding the current global crisis and a drop in commodity pricing and obviously economic impacts on China, that project, being a very long duration project, is still on track.

We have a number of other mining ventures that we believe have got their capital locked away and those projects are still continuing; and, of course our own capital spending program, whilst it will be adjusted—and some deferments will be announced once we are in a position to do so—in general terms our economy is holding up pretty well right now. What does concern me is what we do not know, and what we do not know is what the final impact or end point will be in terms of the economic crisis facing the world which is impacting every part of the globe—and it is now China. Obviously, China is not immune from this. That is why they announced (as only China can do) a stimulus package in the order of some 7 per cent of GDP I am told—some $850 billion (I think that is Australian dollars) of capital injections into their economy—which will, in part, hold up the economy.

If I can indulge the house, I will give a little more lengthy answer on this very issue of where we are at with the financial crisis that the world is seeing. We do need China to keep investing and we do need the American economy still purchasing from China. There is clear correlation between the consumption by people in the United States and the productive output of China and, obviously, a reduction in consumption in America has a significant impact on the level of activity in China.

Having just been overseas, I know there is no question that this is the worst financial crisis the world has seen, certainly since the Great Depression. In many ways it is a more significant crisis than the Great Depression in terms of how it relates to the banking system. The banking system in the world is now gridlocked and dysfunctional. It is being propped up by taxpayers in the United States, Europe and here in Australia. There is barely a bank in Europe that is not guaranteed by government, part owned by government or in some cases totally owned or subsidised by government. It is quite an extraordinary situation that we are facing.

Interbank lending is just a trickle. There is the phenomenon in Europe where deposits are going up in banks in Europe because banks are being guaranteed but, instead of banks then lending that money into the economy, they are transferring it overnight into the European Central Bank and are prepared to take half a percentage point cut on those funds as a safer measure than putting it out into the market. I saw an extraordinary graph, which I have in my office and am happy to share with the leader, which shows a historical timeline of how much money European banks would transfer to the European Central Bank and put on deposit. Since the Second World War the line has been level and, in the last couple of months, it has gone straight up like a sky rocket.

Ms Chapman interjecting:

The Hon. K.O. FOLEY: Sorry?

The SPEAKER: Order!

Ms Chapman interjecting:

The SPEAKER: Order! The deputy leader will come to order.

The Hon. K.O. FOLEY: I am sorry, sir, I thought members may have been interested in some—

Ms Chapman: Do a ministerial statement, but give us an answer.

The SPEAKER: Order! The deputy leader will come to order!

Ms Chapman interjecting:

The SPEAKER: The deputy leader will come to order!

The Hon. K.O. FOLEY: Mr Speaker, I actually gave the answer at the beginning when I gave the—

Ms Chapman interjecting:

The SPEAKER: Order!

The Hon. K.O. FOLEY: I gave forward estimates on GST.

Ms Chapman interjecting:

The Hon. K.O. FOLEY: What else was the question?

The SPEAKER: Order!

The Hon. K.O. FOLEY: Sir, I just thought it might have been of interest to members to pass on some comments. I apologise. I was trying to do it in a bipartisan manner.

Ms Chapman interjecting:

The Hon. K.O. FOLEY: Okay, all right. I am sorry, sir, I was trying to be helpful and taking politics out of the situation. Can I also say, for members' benefit, because it is very relevant to the question, that today Standard & Poor's has released a statement about our state. The headline reads: 'State of South Australia AAA/A-1+ ratings affirmed on low debt levels: Outlook stable'. I will read the first three paragraphs. It states:

...Standard & Poor's Rating Services today said it had affirmed its AAA long-term and A-1+ short-term local currency credit ratings on the State of South Australia, the South Australian Financing Authority, and the Local Government Finance Authority of South Australia. The outlooks on the ratings are stable.

It goes on to say:

The ratings on South Australia reflect the state's low levels of debt, adequate operating performance—

and I like this bit, if I can have the indulgence of the house—

the government's demonstrated fiscal discipline, and strong system of government support, said Standard & Poor's credit analyst Anna Hughes.

The stable outlook reflects our expectation that the state will maintain its commitment to implementing its savings and efficiency dividend measures, and that debt levels will remain low.

The report goes on to say, in the spirit of balance, that there are threats facing our state balance sheet and that Standard & Poor's would be looking for us to make the appropriate adjustments to ensure that we keep our ratios of financial liabilities to operating revenue within a band of between 80 per cent and 90 per cent, and that they would expect us to undertake a number of measures to ensure that occurs, and we are now working on that.

I met with Moody's when in New York and with Standard & Poor's a few weeks ago. They appreciate the fact that we keep them in the loop and keep talking to them, and they appreciate that we are in exceptional circumstances and that there are many things that are simply beyond our power—in effect, the loss on stock market earnings and a lower discount rate in terms of revaluing our unfunded liability—and they will take account of that in terms of how they assess our state.

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