State Treasurer Tom Koutsantonis is confident the state will “exceed” its fiscal targets when he hands down his Mid-Year Budget Review, despite conceding South Australia will be buffeted by a commodity price plunge that “will get worse before it gets better”.
However, he admitted the state would be “behind the eight ball” if mining and energy export prices were to recover more quickly, because crucial planning for key infrastructure was yet to be completed.
“Let’s say they rebounded tomorrow; we’d be behind the eight ball because the planning required for new ports and new infrastructure wouldn’t be ready,” he told InDaily.
The International Monetary Fund overnight released details of its forthcoming World Economic Outlook, forecasting the weak commodity price outlook could subtract one percentage point annually from economic growth in commodity exporting countries such as Australia over the next two years, compared to the previous three.
For energy exporting countries, the drag could be even greater – 2.25 percentage points on average over the same period – reflecting a sharp downturn in oil prices over the past year.
The IMF urged policymakers to be realistic about their potential for growth, with lead author Oya Celasun saying: “Investment, and accordingly, potential output, tend to grow more slowly in exporters during commodity price downswings.”
But Koutsantonis is adamant he remains “optimistic”, maintaining: “I’d say we’ve got a fair bit of certainty in the budget.”
“The (Treasury) Department’s made very, very conservative economic forecasts (so) I’m confident the State Government will be able to exceed its targets in terms of the fiscal outlook at the Mid-Year Budget Review,” he said.
“In terms of economic growth, we’re an exporting jurisdiction … there’s a global downturn, people aren’t buying products and we’ll be affected by that, but the dollar’s dropping (so) SA products are more affordable.”
The review is usually handed down in December.
The June Budget forecast a return to surplus for the first time in seven years in the current financial year, predicting the state would finish $43 million in the black. That was set to rise to a surplus of almost $1 billion by 2018-19.
Despite his bullishness, Koutsantonis agrees with the mood of the IMF report, arguing “this sort of commodity downturn will get worse before it gets better”.
“The uncertainty will be a long-term problem,” he said.
But he defended progressing plans for deep sea ports on the Spencer Gulf despite the downturn. A taskforce has identified a three-pronged solution for developing bulk mineral export infrastructure in the region, opening Arrium’s Port of Whyalla as a multi-user facility and developing ports at Cape Hardy on the Eyre Peninsula and Myponie Point south of Port Pirie.
The State Government and Arrium today announced a memorandum of understanding “that will potentially lead to third-party access to current unused capacity at Arrium’s wholly-owned Port of Whyalla”.
Koutsantonis said cyclical downturns, when the private sector “retreats”, are “exactly the times the Government should be planning for when commodity prices rebound”.
“We know from history that prices will rebound, and when they do there’s often a lag between planning and building,” he said.
“You do that (planning) when the private sector doesn’t have money to invest and Government does.”
He said by progressing the planning work now, “we’ll be ready to go” if and when the downturn ends.
“I’m not saying we go out and build a port and sit and wait for commodity prices to rebound, (but) we do the planning,” he said.
“The first thing we can do is start getting regulatory approvals in place, environmental approvals, access approvals, land management agreements in place, and then if they come to us and say ‘we’ve done our pre-feasibility … but we haven’t got funding’, we can go to Infrastructure Australia and perhaps do a funding split.”
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