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'More of a grind': Warning over slowing state economy

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A sobering report into South Australia’s economy says the state has “spent many of its tickets” in attempting to recover from the pandemic downturn, as the State Government cites the “ongoing challenge” of stagnant population growth and dwindling business investment.

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The latest Deloitte Business Outlook report, printed prior to Australia scrapping its vaccination rollout timeline, says Australia’s economy is “roaring back” from the COVID-19 pandemic and predicts national GDP growth to reach 4.1 per cent next financial year, on top of a 1.1 per cent increase forecasted for 2020-2021.

But it sounded a cautionary note for smaller states and territories, saying they have “already achieved the bulk of their recovery”, with SA’s economic comeback “already slowing” and set to be “more of a grind” in the coming years.

“After a fast start out of the blocks, South Australia’s economy is now coming back to the pack,” the report stated.

“Make no mistake, the state handled COVID superbly. With the virus in check, South Australia’s economy sprung back to life, getting a lead on its counterparts.

“Yet that also means that the state has spent many of its tickets … SA has relatively less capacity for catch up growth through the remainder of 2021.”

The report pointed to dwindling levels of business investment, stagnant population growth and tariffs on wine imposed by China as key obstacles to future state growth.

Lucas rejected Deloitte’s assessment that SA has a reduced capacity for growth after its early recovery success, but acknowledged there was an “ongoing challenge”.

“We obviously welcome their commentary that South Australia’s handling of COVID-19 has been superb, and that we certainly got early runs on the board,” Lucas said.

“We don’t accept the view that there’s not more that we can do because we’re now rolling out a $4 billion economic stimulus package.”

Lucas pointed to the State Government’s decision to extend payroll tax exemptions for small businesses until June as one of the key measures aimed at boosting SA’s post-COVID recovery.

Among the Deloitte report’s key forecasts for the state, unemployment is predicted to drop to 5.9 per cent next year (currently 6.8 per cent), and further down to 5.2 per cent by 2024-2025.

However, population growth will remain stagnant, growing by just 0.54 per cent on average over the next five years.

The state’s economic growth will be steady but below the national figures, with a growth rate of 3.5 per cent forecast for next year before gradually declining to 1.8 per cent by 2024-25.

The report also found South Australia was the only state to record negative growth in business investment in the back half of 2020, putting the state’s investment numbers “almost on par with where is was in the middle of 2020 – a time when Australia economy was first thrown into chaos”, according to the report.

Shadow Treasurer Stephen Mullighan said this was one of the most troubling findings from the report.

“The path out a high unemployment rate is obviously more jobs, and the sector that has got the greatest capacity to add jobs, of course, is the business sector,” he said.

“And if we’ve got the lowest level of business investment in the nation, South Australia is going backwards when the rest of the nation is actually growing in business investment.

“It means it’s obviously going to be harder for the business community to try and add jobs when we need them.”

Lucas pointed to three elements of the State Government’s strategy to overturn the current trend in lagging business investment.

“We have already taken decisions in two respects: one is no small business in the state is going to pay any payroll tax,” he said.

“Secondly, we’re continuing a very significant expansion of skilled investment, together with the federal government to be fair, in terms of incentives to take on apprentices and trainees.

“And thirdly, the massive expenditure we’ve got on public sector infrastructure is all about trying to grow jobs and encourage people to be able to further invest in their businesses because they know there are government contracts that are going to continue over the next four years.”

On the issue of population growth, South Australian economist and Deloitte Partner Aaron Hill said SA was facing a longstanding structural issue.

“Much of the last decade, we’ve faced significant challenges with younger professionals in particular, moving interstate and [SA] not attracting enough people to replace them,” Hill said.

“In our first Make it Adelaide report … we looked at all of the range of different solutions for what the state might look like, because we think it’s really important to target attracting those young people back to the state.”

The report predicts the population to grow just 0.4 per cent in 2012-22, 0.7 per cent in 2022-23 and 2023-24, and then down to 0.6 per cent in 2024-25.

New South Wales, Victoria, Queensland, the ACT and the Northern Territory are all projected to record population growth rates above one per cent over the next five years.

Mullighan said the state would face an even greater problem when borders opened both internationally and domestically.

“As much as the State Government likes to go on about the fact that the exodus of young South Australians has now stopped, this report spells out very plainly that that’s a pretty hollow boast,” Mullighan said.

“It’s pretty hard for South Australians to leave when the borders are closed.

“But what [Deloitte] really ring the alarm bells about it that once border restrictions are lifted on an ongoing basis, we’re at very substantial risk of seeing young South Australians leave for interstate and overseas – particularly those people who will go back to those jobs that they’ve temporarily left because of the pandemic.”

Lucas said the State Government was aiming to raise the state’s population growth in line with the national figures.

“Over the last 20 years under Labor, population growth has been half the national population growth, and that’s because Mr Mullighan and Mr Malinauskas and Mr Weatherill took the view that they didn’t support population growth because they didn’t want Adelaide to end up like Sydney and Melbourne,” he said.

“Well, we’re taking a different view, not that we want to end up like Sydney or Melbourne, but we believe population growth in South Australia should be aiming towards national population growth numbers.

“To do that we’re going to have to try and reverse the brain drain … and we’ve seen a bit of that over the last 12 to 18 months in the numbers.

“But the key part is obviously going to be migration, until we’ve got international travel and we can actually see migration occur again, all the population growth numbers nationally in each of the states will be much lower than what has been the case.”

The report also highlighted concerns related to SA’s participation rate, which measures the proportion of people either in the workforce or looking for a job.

South Australia in November 2020 recorded the lowest unemployment rate among the states at 6.2 per cent, But the report said the state’s unemployment figures had an “unjustified shine” due to a decline in the participation rate.

The report goes on to state that “worryingly, South Australia’s unemployment rose in recent months even though participation fell – that’s bad”.

Hill said it was the “the most concerning trend” identified in the report.

“Having said that though, you need to balance that off against the relatively strong performance in the weekly payroll jobs and wage data which has regained some momentum,” he said.

The Australian Bureau of Statistics will release the March labour force figures on Thursday, which will capture the final days of the JobKeeper program.

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