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Sluggish housing market hits budget surplus

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A sluggish housing market and a construction slowdown are hitting the state budget bottom line, with plummeting conveyance duty revenues contributing to a softer surplus in Treasurer Rob Lucas’s mid-year statement, unveiled today.

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Lucas revealed a Mid Year Budget Review net operating surplus of $40.1 million for 2018-19 –down from $48.2 million in the September budget.

The MYBR document reports that conveyance duties “are expected to be lower than estimated at budget time”, with the revenue hit partially offset by slightly higher payroll tax returns.

Conveyance duty revenues are down by $22 million in just three months and are predicted to fall further in each year of the forward estimates.

“Total taxation revenues have been revised down in all years, mainly due to revisions to conveyance duty,” the document states.

“Conveyance duty receipts have been revised down, mainly reflecting lower than expected year-to-date growth in residential property values and transaction numbers, as well as lower transaction growth estimates from 2019–20.

“Conveyance duty receipts are still expected to grow in 2018–19, but more modestly than forecast in the 2018–19 Budget.”

After the closure of various building companies in recent days, Master Builders SA CEO Ian Markos this week demanded a raft of reforms to arrest the sharp decline of SA’s housing construction market.

State taxation estimates across the forward estimates are down by $79 million across the next four years, but the blow is softened by GST revenues, which are up $41 million in 2021–22, “reflecting the additional funding provided by the Commonwealth Government to ensure no state is worse off under the new distribution arrangements”.

The accounting treatment of the Land Services privatisation – sold off by the former Labor Government – was “under review” at the time of the September budget but has now been resolved, with the MYBR recognising the proceeds of the sell-off as revenue, which has improved the budget bottom line.

A separate review of that privatisation by Auditor-General Andrew Richardson, also published today, found that “in the main, sound processes and controls were adopted and comprehensively documented”.

However, Richardson appeared less convinced about the element of the sale described by Lucas as a “secret deal” to privatise the state’s Motor Vehicle Registry, which would see access to more aggregated public data sold off to private enterprise, and potentially used for commercial purposes.

“We did… identify some areas where procedures, practices and controls could be improved,” Richardson noted.

“There is a lack of transparency for the general public about the contractual arrangements entered into with a private service provider for critical public services and the nature of consulting advice provided by the transaction advisors.”

Lucas said the mid-year budget statement “reaffirms our commitment to return the budget to real surpluses”.

“We can no longer conceal the real situation by using ‘one-off sugar hits’ from the privatisation of the Motor Accident Commission,” he said.

“It also invests in a sound recovery program to stem the significant budget blowout in the Central Adelaide Local Health Network, which has been haemorrhaging $300 million a year under Labor’s watch.”

The document details a total of $172.1 million over four years in new spending decisions taken since September, including $48.2 million from 2020-21 for government schools under the National School Reform Agreement with the Federal Government, $34.3 million to meet additional costs for children in state care and a $101.9 million SA Health rescue fund, which includes $18.9 million over 12 months for auditors KordaMentha.

Lucas said the budget’s economic forecasts “remain unchanged” except for Gross State Product growth, “which is half a percentage point lower in 2018-19, and a half a percentage point higher in 2019-20, reflecting the impact of dry weather conditions significantly reducing winter crop production levels this financial year”.

Net debt, which Lucas has consistently maintained he is content to carry, will increase by $247 million in 2021-22, “largely reflecting” the new budget spending decisions.

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