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Legislative Council - Fifty-First Parliament, Second Session (51-2)
2008-06-19 Daily Xml
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SUPPLY BILL 2008

Second Reading

Adjourned debate on second reading (resumed on motion).

(Continued from page 3443.)

The Hon. R.I. LUCAS (16:09): I rise to indicate my support for the second reading of this bill. There are really only about three issues I want to raise in my contribution. We will have an opportunity in about a month or so to debate the more substantive Appropriate Bill, and we can all, if we so choose, speak at greater length on that occasion.

I want to address two or three of the key issues that relate to the Supply Bill and to the state budget's position. In doing so, I want to refer to a statement the Treasurer made on 10 June this year on ABC Radio.

Indeed, I am sure all South Australians would welcome the fact that both the Treasurer and the Premier have put their dummies back in and are now again being interviewed by Matt Abraham and David Bevan on ABC Radio, having spat the dummy and refused to be interviewed for somewhere between 12 and 18 months. On 10 June, in a sort of general attack on the former Liberal government, the Treasurer said:

...all through the eight years of the Liberal government they borrowed money, racked up debt.

Then further on he said:

...the debt we will have in...four years' time, in 2012 will be not that much larger than what I inherited from the Liberal government when I took office, in which I paid down...

I seek leave to have inserted in Hansard without my reading it a purely statistical table which is Appendix B page B.8 of Budget Statement, Budget Paper 3, headed 'Table B9: Non-financial public sector key balance sheet aggregates'.

Leave granted.


Table B.9: Non-financial public sector key balance sheet aggregates ($ million)
As at 30 June Net debt (a) Unfunded(b)Superannuation Net Financialliabilities Net financialworth Net worth
1988 4 397
1989 4 197
1990 4 457
1991 5 418
1992 8 142
1993 11 610
1994 10 550
1995 8 844
1996 8 432
1997 8 170
1998 7 927
1999 7,658 3 909 13 099 -12 258 10 622
2000 4 355 3 543 9 914 -8 986 12 445
2001 3 223 3 249 8 152 -7 109 14 816
2002 3 317 3 998 8 973 -7 902 14 721
2003 2 696 4 445 9 096 -8 811 15 288
2004 2 285 5 668 10 031 -9 550 15 760
2005 2 126 7 227 11 511 -11 004 16 359
2006 1 786 6 146 10 451 -9 889 19 703
2007(c) 1 989 5 075 9 518 -8 795 22 128
2008(d)(e) 2 029 6 910 10 902 -11 169 21 682
2009 2 776 6 992 11 761 -11 969 22 425
2010 3 804 7 062 12 934 -13 096 23 361
2011 4 849 7 120 14 185 -14 374 24 320
2012 5 230 7 164 14 739 -14 900 25 427


(a) Net debt data for the years up to and including 1998 are sourced from the Australian Bureau of Statistics, Government Financial Estimates 2003-04 (catalogue number 5501).

(b) There is a structural break in the methodology used to calculate superannuation liabilities between June 2003 and June 2004. This accounting change, which involved the adoption of the Commonwealth Government bond rate for valuation purposes in line with the accounting standard on employee benefits, resulted in a significant increase in superannuation liabilities.

(c) There is a structural break in 2007 reflecting the amalgamation of SAFA and SAICORP on 1 July 2006. The transfer of SAICORP'S assets and liabilities from the general government sector to the public financial corporations sector resulted in an increase in non-financial public sector net debt of $99 million at 1 July 2006 and an increase in net financial liabilities of $90 million at 1 July 2006.

(d) There is a structural break in 2008 reflecting the amalgamation of the South Australian Community Housing Authority (PFC) with the South Australian Housing Trust (PNFC). This results in an increase in net debt and net financial liabilities and a decrease in net financial worth of $98 million in 2007-08, with no impact on net worth.

(e) There is a structural break in 2008 reflecting the first time recognition on the general government balance sheet of South Australia's share of the net assets of the Murray-Darling Basin Commission. This has no impact on net debt, however results in a reduction in net financial liabilities of $615 million in 2007-08, and increases in net financial worth and net worth of $615 million.

The Hon. R.I. LUCAS: This table shows, among a number of other aggregates, the net debt levels in the non-financial public sector which is in essence a combination of the general government sector which is the narrowly-defined budget sector and the non-financial public corporation sector, which includes organisations and agencies like SA Water, TransAdelaide, West Beach Trust and a variety of other similar agencies.

The table shows that in 1993, when the former Labor government left office and the former Liberal government came into office, the net debt levels in the non-financial public sector were $11.6 billion. On 30 June 2001, at the end of the last financial year before the change of government in March 2002, that $11.6 billion figure had been worked down to $3.2 billion, a reduction of almost $8.5 billion dollars in the level of net debt in South Australia. I repeat the quote that I gave earlier. We have the Treasurer going on morning radio saying:

...all through the eight years of the Liberal government they borrowed money, racked up debt.

That statement was clearly untrue. Not only did we not rack up debt: we actually paid off debt to the tune of $8.5 billion dollars, and it was reduced from $11.6 billion down to $3.2 billion in the last year of the former Liberal government. Given that the receipts from the electricity sale and privatisation were approximately $5 billion, it was not just the proceeds from the difficult decision on the electricity privatisation that meant we were able to reduce the level of net debt in South Australia.

This is a sad testament to this government that, from the top down, from the Premier to the Deputy Premier, we have them on morning radio or in any sections of the media, just blithely making untrue statements all over the place. It is not always possible for working journalists to be able to immediately pick up on the Premier and the Deputy Premier and others when they make these untrue statements, for example, that for the whole of the last eight years of the Liberal government we were racking up debt during that particular period.

The Treasurer then went on to say that the debt he will have in four years will be not that much larger than what he inherited. Well, it is actually going to be about $2 billion larger. I am not sure what the Treasurer's definition of 'not that much larger' really is. To me, $2 billion sounds like a lot of money. It is approximately a 60 to 70 per cent increase in the levels of net debt.

As of 30 June 2007, the net debt level was $1.9 billion in South Australia, and the position in 2012 is estimated to increase to $5.2 billion. In fact, it is not an increase of $2 billion: it is an increase of $3 billion which, in percentage terms, is an increase of not 60 or 70 per cent but probably 100 or 160 per cent. It is a very significant increase in the level of net debt in South Australia.

Again, the Premier and the Treasurer are out there in the media making untrue statements, saying, 'We're not actually increasing debt by much at all, and the debt we'll have in four years won't be that much greater than that we inherited.' In relation to the $2 billion, it is not the level of debt he now has; it is the level of debt he inherited, which was $3 billion at that time. His argument is that it is going from $3 billion to $5 billion.

So, when you compare the net debt in four years ($5.2 billion), it is an increase of just over $2 billion on the debt he inherited in 2002, and it is an increase of $3 billion on the debt he currently has ($1.9 billion). On both counts, the Treasurer has not been making truthful statements to the media in relation to the critical issue of net debt figures.

The issue of net debt is important, and I think it is fair to refer to the statements issued by Standard & Poor's. As a former treasurer, I have had some experience with the normally cautious language used by ratings agencies when they comment on state finances. They are not prone to hyperbole or exaggerated and emotional statements. Generally, they undertake a dispassionate and independent assessment of the financial position of the various states. A statement, issued this year after the state budget on 5 June, certainly confirms in the first instance that the budget announced is consistent with the AAA rating and the stable outlook already assigned to the state. It states:

As in the other Australian states, South Australia's net debt is rising so that it can fund capital expenditure projects. Indeed, whole of government net financial liabilities as a proportion of revenue are forecast to grow to 79.3 per cent in the year to 30 June 2012 from an expected 66.9 per cent in 2008. The 2012 debt forecast is close to what was recorded by South Australia when its credit rating was one notch lower.

This is a clear warning sign from a normally cautious ratings agency. I repeat: the 2012 debt forecast ($5.2 billion) is close to that recorded by South Australia when its credit rating was one notch lower than the AAA credit rating. It continues:

Since then, South Australia's economy has become stronger and more diversified; however, it will become more difficult for the state to retain the current rating if it exceeds its debt level forecasts.

When one looks at recent credit rating reports by Standard & Poor's, this is a clear shot across the bow of the Treasurer and the state government. When one goes over similar statements made by Standard & Poor's after other budgets over the past five or six years, one will not see similar language; that is, that it will become more difficult for the state to retain the current AAA rating if it exceeds its debt level forecasts. It is a clear warning: if you go above $5.2 billion, it will be difficult for you to stay with a AAA rating and you may well end up dropping back a notch to AA or AA plus. The statement from Standard & Poor's continues:

The state's operating surplus as a proportion of revenue is forecast to average 2.4 per cent between 2009 and 2012. It is a strength that the government has improved its operating position and is planning to implement additional efficiency measures to further shore up the state's operating position.

I interpose that, for a number of years now, the government has been maintaining that it will shore up its operating position by implementing efficiency measures. This is advice from me to Standard & Poor's: go back and check the statements made by this Treasurer and the government over the past two or three years in relation to savings targets for agencies.

I would be happy to provide Standard & Poor's with evidence collected from the hardworking Budget and Finance Committee of the Legislative Council, which has demonstrated that, having been given savings targets by the Treasurer, a number of agencies have not delivered on them. One example is the issue of the Shared Services centre, which is meant eventually to save $60 million a year from the implementation of the Shared Services initiative.

I think that at least four or five agencies have reported to the Budget and Finance Committee that they have been given savings targets as an individual portfolio, that the Treasurer had his own shared savings target of $60 million a year and that some initiatives taken by agencies were being double-counted; that is, they had already been incorporated into the agencies' savings measures and the Treasurer had included them in his estimate of overall savings from the Shared Services initiative.

A couple of chief executive officers reported that they took up these issues with the Under Treasurer, who agreed that they would stay within the agencies' savings measures. If that is the case, it means that they therefore cannot be double counted in the $60 million figure of the shared services savings initiative. If that is the case, to the tune of many millions of dollars, we will have a black hole in the supposed savings measures to be implemented by those particular agencies.

This government's record on achieving savings measures is, being generous, very patchy. For six years the government has refused to provide details of the savings measure supposedly implemented in 2002, in its first budget. As I have placed on the record before, a source within Treasury has told me that one of the reasons why the Premier and the Treasurer will not release the details of the actual savings measures is that, one, a significant proportion were not achieved and, two, a significant proportion were actually not savings measures or cuts but were actually increased revenue measures. That is, rather than cutting back on expenditure, agencies were ratcheting up revenue and extra fees and charges collection within those particular agencies.

The final statement by Standard & Poor's analyst, Anna Hughes, is as follows:

The rating could come under pressure if the state's balance sheet was to weaken more quickly than forecast.

The commentary continues:

Standard & Poor's considered this outcome unlikely between now and 2012, particularly given South Australia's unresolved infrastructure and labour market bottlenecks.

What Standard & Poor's is saying there—and it really has not been picked up by the media in its commentary—is that significant commitments have been made by the government in relation to infrastructure, but it is unlikely to meet some of its spending targets in relation to those programs because it has not resolved some infrastructure and labour market bottlenecks within those areas.

So, for the first time in many years, we have a very clear warning sign from Standard & Poor's (the rating agency) about the state of the budget and the state of the budget over the next four years or so. I think it is really imperative that this government listens to some of those cautionary notes from Standard & Poor's and that it tries to start to address some of the issues identified by Standard & Poor's and other commentators.

When one looks at the table that I have incorporated, one only has to look at some other aggregates to see that the unfunded superannuation levels from 2001 of $3.2 billion are now estimated to go up to $7.1 billion in 2012. So, we see an increase in unfunded superannuation of almost $4 billion during that period if the Labor government stays in until 2012 and this program is implemented.

In net terms, the state's total net financial liabilities from 2001 would have jumped from $8.1 billion up to $14.7 billion (almost a doubling), an increase of $6.5 billion. One of the Treasurer's fiscal strategy targets of net financial liabilities over revenue, which was meant to have been around about 70 per cent or so, has been exploded by this budget and recent budgets. As Standard & Poor's commented, that number is well into the high 70s. The budget papers actually record net financial liabilities to revenue rising to 75.8 percent in 2011-12, although Standard & Poor's has reported that whole of government net financial liabilities as a proportion of revenue are forecast to grow to 79.3 percent in the year to 30 June. I am not sure what Standard & Poor's includes in its whole-of-government estimate, but the government's estimate is just off the general government sector net financial liabilities to revenue of 75.8 percent, and that is significantly higher than the fiscal strategy target that the government laid down.

That has been a common theme for the past five or six years. The Treasurer came to government and said that the one true measure of the health of the budget was the deficit measure called net lending and that he was going to have the budget in surplus underneath that measure. When that started going significantly south, all of a sudden he changed his definition to the operating result and net operating balance. As we have highlighted for the past two or three years now, of the three measures—whether the budget is in deficit or surplus—two of the three are in significant deficit: cash and the net lending measure. As I said, the net lending measure was the one the Treasurer said was the best.

If we look at the net lending measure in broad terms, under this budget we will be $2 billion in deficit over the next four years. If we look at cash, it will be $2 billion in deficit over the next four years. As I said, the only measure that is actually in surplus is the net operating balance.

The final point I make—and, as I said, we will have the opportunity during the Appropriation Bill to speak at greater length—is that again we are seeing in this budget another blow-out in the employment of public servants over and above what was originally budgeted. Of course, what the Supply Bill that we are debating at the moment provides is payments to these public servants and other services until the Appropriation Bill passes.

One of the reasons why it has to be as large as it is at the moment is that, again, the Treasurer had a blowout of 2,000 more full-time equivalent public servants in the last year than he predicted. If you remember, two or three years ago we were going to have this cap on the public sector. We had been highlighting for quite some time that the Treasurer had budgeted for 2,000 full-time equivalent public servants in his first six budgets and he ended up with 12,000: he went over the budget by a lazy 10,000 full-time equivalents.

After we had raised those issues over a number of years the Treasurer said, 'I'm now instituting a definite cap on the public sector. I'm going to rein in these ministers who keep coming back for more money and they're going to be locked in in terms of the total number of people they can employ.' What do we see in the first full year after that? We see another blowout of 2,000 full-time public servants.

So, over seven budgets now the Treasurer has budgeted for an increase of a bit more than 2,000 full-time equivalent public servants, and now we find that he has actually employed 14,000 full-time equivalents: a blowout of 12,000 full-time equivalent public servants in seven years. That is the reason why the number has to be so large in the Supply Bill: he has not been able to keep his ministers and his budget in control.

There is a simple message there. If you were the chief executive officer of a major private sector business and over a seven-year period you budgeted for an increase of 2,000 full-time employees, and at the end of that seven years you had to go back to the board and say, 'Whoops, we overshot just a little bit,' the chair of the board would say to the CEO, 'Well, how much did you overshoot by—a couple hundred?' 'No, I overshot by 12,000. Instead of 2,000 extra employees I find we have 14,000 extra employees in the business.' I would ask members to think through how long that person would remain as chief executive officer in that major business.

The PRESIDENT: Extend the canteen a bit.

The Hon. R.I. LUCAS: Extend the canteen a bit, the President is suggesting. The chief executive would not last very long and, frankly, that ought to be the position in relation to the current chief executive—in charge of the finances, that is—and that is the Treasurer, Mr Foley. Even though he waxed lyrical a year or so ago about having a hard employment cap on agencies, he has been unable to control himself or his ministers in terms of that particular cap and, as I have said, we have seen a further blowout of 2,000 full time public servants.

That is one of the reasons why we are starting to get warning shots from Standard & Poor's, which is beginning to see a history of serial offending in relation to not being able to deliver on targets. The only reason we have been able to deliver surpluses on one of the three measures now—and not the one that he wanted to—is that we have been winning X Lotto every year with extra GST and property taxes.

In each of the last seven years, the Treasurer has been relying on winning X Lotto, and he has won it in each of those years. The budget blows out, he employs extra people, but—voila—there is a few extra hundred million dollars every year, sometimes more than half a billion dollars, in unexpected revenue inflows from GST and property taxes. I am sure the Hon. Mr Darley would be familiar with the inflows that have gone into the budget over the past few years.

You cannot go on balancing your books by relying on winning X Lotto every year. Sooner or later you are going to have to have the discipline to actually stick to the budgets that have been approved in relation to some of these departments and agencies. With that, I support the second reading of the Supply Bill.

The Hon. P. HOLLOWAY (Minister for Police, Minister for Mineral Resources Development, Minister for Urban Development and Planning) (16:37): I thank honourable members for their contribution to the Supply Bill. This bill simply provides a sum of money to enable the operations of government to extend beyond 1 July. As this is the last sitting day scheduled before the end of the financial year, I will not take any further time on the bill. Most of the issues that were raised, in fact, related to the budget. When we resume on 3 July we will be receiving the Appropriation Bill and we will have the opportunity to have a full debate on those matters then. Again, I thank members for their contribution to the Supply Bill.

Bill read a second time and taken through its remaining stages.

The Hon. CARMEL ZOLLO: Mr President, I draw your attention to the state of the council.

A quorum having been formed:

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