Economic recovery hasn’t been matched by revenue growth putting pressure on state governments to raise taxes, says the latest BankSA economic bulletin.

The soft revenue growth hasn’t kept pace with demand for services, the bank’s CEO Jane Kittel said today.

“The impacts of a deteriorating Budget will be many and the State Government will be under increasing pressure to deliver services and infrastructure from its own tax base,” she said.

“The State’s industry faces the prospects of less financial support, while both individuals and producers in the State may be hit with higher taxes.’’

The latest edition of BankSA’s Trends economic bulletin examines the longer term implications of an Australian economy that is now less ‘tax friendly’ than it was prior to the Global Financial Crisis.

The BankSA report, compiled in conjunction with Deloitte Access Economics, explores this impact on the national as well as the South Australian economies.

Kittel said the report shows that the economic recovery since the GFC hasn’t seen a matching recovery in revenues, and that has left the Budget in some degree of trouble.

“At $370 billion, the Budget comprises around one quarter of Australia’s economy,’’ she said.

“The two most important priorities of the nation are reflected in our Budget – our taxes and our spending – and both have significant impacts on national prosperity.’’

The report says in recent times the Government has tried to raise revenue but is still also looking to spend. “Government policy has not only been to spend in the good times, but also to spend in the bad times,’’ the report says.

“That has left the Federal Budget deep in the red.  And both sides of politics are responsible as these problems have been brewing for the better part of a decade.’’

Looking back at that decade, it was one of the best budget environments Australia has ever enjoyed, the report said. “The rise of emerging economies and their associated rapid industrialisation gave Australia a pay rise, paying top dollar for our  coal, iron ore and other commodities.

“When the GFC hit, Budget policy entered a new phase. Australia’s policy became counter-cyclical, serving as a defence against the downturn. Then policy slowly swung back towards restraint.

“Up until Christmas 2012, the Government was aiming to get back to Budget surplus in financial year 2012-13. However, it has since had to abandon that ambition.’’

On the bright side, the robust strength of the $A is one of the reasons why South Australian families can buy many things more cheaply today than they could a generation ago, the report said.

“We pay far less for certain clothing items such as shoes and children’s clothes, major household appliances and small electrical appliances are now 18 per cent cheaper than they were twenty years ago and new cars are now 15 per cent cheaper than they were in 1993.

“But other prices have jumped over time – electricity, education, insurance and health costs the largest. “And South Australia’s farmers are still watching the Australian dollar like a hawk.  The currency has sapped some strength from farm incomes in recent years, so farmers will hope that the falls seen in the $A of late won’t be the last.”