Twenty years' neglect of South Australia's public services and infrastructure will need to be remedied if the State Government intends to meet the 79 targets set out in the State Strategic Plan. Many of these targets will require much higher levels of public and private investment than has been the case in the recent past. The economic dogma that has underpinned zero net public borrowing will have to be abandoned. Those who are locked into this view will must now open their minds.
This year's State Budget is the first place to look for evidence that the State Government is serious about implementing the State Strategic Plan. In presenting the State Budget, Treasurer Kevin Foley made the Government's intentions clear, saying "... this years State Budget - and subsequent Budgets - will help to achieve the objectives set out in the (State Strategic) Plan".
But are necessary funds available to make good on such intentions? Sustained economic growth and the housing boom have boosted revenue to the 2004 State Budget, thus enabling the State Government to announce a significant surplus and additional spending in several areas identified in the State Strategic Plan.
However, the primary target in the State Strategic Plan is achieving a AAA credit rating - and that now hangs in delicate balance in the wake of the Mitsubishi crisis. The State Government was comfortably on track to secure its intended AAA prize: Projections of successive State budget surpluses and the elimination of net debt in the general government sector by 2005-06 would have been enough to attract a credit rating upgrade. But the announcement of Mitsubishi's plans to slash its manufacturing and workforce in SA changed the outlook considerably. Responding to the State Budget, Rick Shepherd from credit ratings agency Standard and Poors said: "The only factor currently constraining South Australia's rating is concern over the medium-term economic outlook." He expects noticeable direct and flow-on effects on economic growth and confidence in the state in the wake of the Mitsubishi announcement. While Standard and Poors was optimistic about the capacity of South Australia to "bounce back" from the Mitsubishi shock, it was waiting "to see what the full economic ramifications of the decision" were before moving to increase the state's credit rating to AAA.
How will the State Strategic Plan unfold without attaining AAA credit rating? Fortunately, most of the economic targets in the State Strategic Plan are not likely to be influenced at all by this. They depend more upon supportive Commonwealth policies and favourable international economic conditions. The State Government has limited capacity in our Federal system of government to influence rates of economic, employment and population growth. These depend on exchange and interest rates, national trade, investment and taxation policies and Federal levels of public and private sector investment. The Rann Government's stated targets of exceeding the national economic growth rate and bettering the Australian average employment growth rate within 10 years are at the mercy of these conditions.
Perhaps the most important contribution the State Government can play in seeking to meet these targets is to successfully lobby for the introduction of supportive employment, industry and regional development policies by the Federal Government. It can also exert influence on State levels of public and private sector investment and it can help diversify and strengthen South Australia's economic and employment base, particularly by increasing public sector investment in social and physical infrastructure.
The 2004-05 State Budget begins to repair some of the damage done to State public services by the excessive public sector employment cuts of the previous government. There are 25,000 less State public servants than there were 10 years ago, undermining the capacity of the State Government to deliver high-quality public services in critical areas such as health, child protection and education. Some of SA's brightest and most experienced public servants have been lost, eroding the policy and planning capacity of the public service and making it difficult for those who are left to meet the increased expectations created by the State Strategic Plan. Announcements in the State Budget have gone some way to relieving some of this pressure. This includes funding to increase staffing in hospitals, improve literacy, employ more social workers to support child protection programs, tackle homelessness and boost home and community care signal an important commitment to some of the "Improving Wellbeing" and "Expanding Opportunity" targets outlined in the State Strategic Plan.
One of the key targets in the Strategic Plan is to "increase investment in strategic areas of infrastructure, such as transport, ports and energy". A State Infrastructure Plan outlining strategic priorities over the next five to ten years is currently being developed. Inevitably this must include commitments to much higher levels of public spending on capital works than recent State Budgets have provided for. This years State Budget commits around $1 billion to building new roads and buildings. Of concern is the fact that there has been no significant increase in capital works expenditure in the State Budget over the past ten years, despite our ageing infrastructure. By comparison, the Queensland Government allocated around $6 billion to new capital works in its last State Budget. Even if it were possible to substantially increase capital works expenditure in South Australia through the State Budget, it would not be prudent to fund all of our infrastructure needs in this way. A far better strategy for the State Government would be to use its capacity to borrow at relatively low interest rates and spread the cost of repayments on debt over a long period of time, much like you do when buying a house or investing in a business. The Framework for Economic Development prepared by the Economic Development Board suggests this approach when it recommends that the State Government review its zero net borrowing funding policy. Currently this policy requires "that operating revenues cover all expenditure, including capital and infrastructure expenditure". This is an extremely restrictive and financially imprudent strategy. The State Government should be emboldened by statements both from the Economic Development Board and mainstream financial institutions, advocating public sector borrowing as the antidote to our ageing infrastructure. It should heed comments from Rick Shepherd from Standard and Poors who suggests that capital spending "...was allowed to fall too low in the 1990s when fiscal consolidation was taking place".
South Australia's strong financial position should fill the State Government with the confidence to embark on a substantial infrastructure modernisation program as the centrepiece of the State Strategic Plan. The benefits of this will be significant. Modern infrastructure helps to attract and retain investment and people. It creates jobs and boosts productivity. It improves our health and wellbeing. The State Strategic Plan should be the means to lay the foundations for the prosperity of generations to come.
