State Budget 2018 recap

Business SA welcomes the South Australian Liberal Government’s first budget and commitment to reduce costs for businesses, including payroll tax, land tax and emergency services levy cuts, while spending to facilitate economic growth and improve education and health outcomes. We believe the 2018 State Budget will put more money back into businesses and consumers’ pockets, resulting in jobs growth and better outcomes for South Australia.

Watch Anthony Penney, Executive Director, Industry & Government Engagement give his overview of the 2018 State Budget.
   

Below is an analysis from our policy team on what are the key points for South Australian businesses. If you would like to provide any feedback please contact us via customerservice@business-sa.com


Click here to download the full budget papers
 


The state budget has been handed down in an environment of improving economic performance and rising business confidence, despite Holden’s closure. The state’s transition away from relying on automotive manufacturing has been bolstered by recent defence spending decisions on future submarines, and tourism numbers are very strong with expenditure at record levels, along with record international student numbers. The headwind facing businesses is the lack of rain in some key grain growing areas, which may significantly reduce the 2018/19 crop.


The state budget recorded a $397 million deficit for 2017/18, but the State Government forecasts this to turn into a thin $48m surplus in 2018/19, with modest surpluses between $100m and $200m across forward estimates.

South Australia’s gross state product grew by an estimated 2.25 per cent in 2017/18, following similar growth in 2016/17. The Government’s budget relies on relatively conservative economic growth forecasts of 2.25 per cent across forward estimates, compared to national growth of 3 per cent over the same period. Despite the closure of Holden, employment growth increased by 2.1 per cent in 2017/18, and again, the Government has only forecast conservative employment growth of 1.5 per cent in 2018/19, then 1 per cent across forward estimates. Unemployment currently sits at 5.6 per cent.

Business Taxes and Changes to Levies

The state budget delivered on several key business tax promises, particularly payroll tax and land tax, and to a lesser extent the Emergency Services Levy. The Government has abolished payroll tax for businesses with payrolls below $1.5m, but aside from a progressive transition up to $1.7m, businesses with larger payrolls will only have their first $600,000 exempted. Across forward estimates, the amount of payroll tax collected by the State Government will continue to rise.

Many businesses will benefit from land tax relief, with the tax-free threshold increasing to $450,000, and a new 2.9 per cent rate introduced between $1.2m and $5m. There is a $360m increase in ESL remissions over four years, returning an average of $145 to property owners.

Skills, Apprentices and Education

The State Budget confirms a commitment to create an extra 20,800 apprenticeships and traineeships over four years, matching the Federal Government’s $100m contribution.

TAFE SA will receive an extra $109.8m over five years, and also recognises the previous TAFE SA budget’s 5.2 per cent growth rate was unsustainable. Seven under-used TAFE SA campuses will close, with the courses being consolidated at other sites. The Government has allocated $39.5m to ensure the delivery of quality educational services and to implement a new audit system in response to the ASQA audit. The budget recognises the importance of TAFE SA in becoming competitive with the private sector training providers by reforming its operations.

The State Government will create a new International School of Culinary Excellence, Hospitality and Tourism as part of TAFE, which Business SA welcomes as a boost to one of the state’s major growth industries.

While Business SA recognises why TAFE campuses with low and falling numbers have been targeted for closure, we are concerned about the effect it will have on regional South Australia. Business SA will continue to advocate for cost-effective private alternatives to be established to ensure regional students are not disadvantaged.

Economic Infrastructure

Infrastructure was a major winner in the State Budget. Key projects will be funded with Commonwealth support, including $354m for the Regency Road to Pym Street upgrade (North-South Corridor), $100m for the Joy Baluch Bridge duplication, $89m for a Port Wakefield overpass and highway duplication, $264m for the Main South Road duplication from Seaford to Aldinga, and $15m to complete the Penola Bypass. The Government has allocated $5.5m to fund business cases for remaining projects to complete the North-South Corridor, which Business SA will continue to argue should be prioritised based on key export pathways, including for air freight.

Infrastructure SA has received $8.2m in funding over four years to provide an independent and targeted infrastructure decision-making process, while the Government is providing $20m to develop the Globelink Masterplan for a freight-only airport near Murray Bridge, as well as an Adelaide ring route.

Business/Industry Funding and Change of Approach

A range of industry and grant support programs have been cut, to be replaced by three targeted funds; a $100m Economic and Business Growth Fund, a $27.9m Research, Commercialisation and Start-up Fund, and a $150m Regional Growth Fund. The State Government has made it clear that it does not subscribe to the previous Government’s agenda of picking winners and will be tying industry assistance to funding proposals which benefit the state more broadly, rather than directly to individual businesses.

Key programs to be axed include the Future Jobs Fund, Unlocking Capital for Jobs Program, Fund My Neighbourhood Program and the Jobs Accelerator Grant Program. For energy intensive businesses which had applied for assistance with capital projects as part of the Energy Productivity Program, unfortunately the initial $31m in funding will be reduced by $4m, although there are still $2.5m of grants to be awarded.  The Government has also axed several boards and committees but will establish new entities such as Infrastructure SA and the South Australian Productivity Commission and Industry Skills councils.

Public Sector

The State Government will cut the public sector by 4,000 full time equivalents over four years. However, 1,700 of these staff will be transitioned to non-government organisations associated with the National Disability Insurance Scheme. The previous State Government targeted 4,000 staff in 2010 and 2014/15, both of which were not achieved. Regarding the two previous Labour Government promises, not only did public sector numbers fail to contract, they increased, with more than 2,000 public servants employed in the past 12 months alone.

The Government has advised it will consider outsourcing public services if there is a cost-effective alternative and will start by benchmarking interstate jurisdictions.

While the Government has a significant pipeline of productive infrastructure investments, it will still breach the previous Labour Government’s net debt to revenue cap of 35 per cent over forward estimates, peaking at 41 per cent in 2022. Business SA is mindful that South Australia must continue to live within its means, particularly if it hopes to regain a AAA credit rating. At some point, the state will need to enact deep and meaningful reform to the public sector to achieve this.

International Trade & Tourism

The State Government has expanded South Australia’s international trade footprint, with standalone offices to open in the Middle East, Malaysia, Japan and the United States. This follows Business SA’s pre-election call for new trade representation in the Middle East and United States, where trade flows from South Australia have stagnated over the past five years when contrasted with Chinese exports, which are up by more than 50 per cent. The Government plans to open an investment office in Shanghai to increase foreign direct investment in South Australia.

The transformation of the former Royal Adelaide Hospital site into a major tourist drawcard has been bolstered by a $60m injection towards the cost of a new Aboriginal art gallery.

The convention industry is set for a significant boost with $21m added to the Convention Bid Fund to keep pace with competing jurisdictions. Business SA had called on this fund to be increased in our pre-election Charter for a More Prosperous South Australia, based on the fund helping the Adelaide Convention Bureau attract 191,000 delegates over the past four years, resulting in $725m in associated economic benefits. The broader tourism sector will benefit from an extra $10m in 2018/19 to market South Australia to key interstate and international markets.

Regional Support

The State Government has a clear focus on the regions in this budget, with several major infrastructure funding announcements including the Joy Baluch bridge duplication, Port Wakefield Overpass and Penola Bypass completion. The Government has established a $315m Regional Roads and Infrastructure Fund over four years, with 30 per cent of the state’s mineral and petroleum royalties paid into the fund. A $150m Regional Growth Fund will be spent over 10 years to unlock regional economic development opportunities, including critical economic infrastructure. Business SA expects many of the issues raised in our 2018 Regional Voice report will create a solid case for prioritising these funds.

The regions will benefit from $10m over three years to address mobile black spots across the state, a key concern arising from the Regional Voice. Regional Development Australia boards will have funding certainty, with $12m over four years, and country health services will benefit from an extra $192m over 10 years.

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