Lucas, a long-time critic of government debt, yesterday handed down a budget that set a new state borrowing record, spiralling from $13.5 billion in 2018-19 to $21.2 billion in 2022-23.
Asked today on ABC Radio whether the debt was likely to be paid off in his lifetime, the Treasurer said: “I don’t know how long I’m going to live [but] if we do it on average it is unlikely the total debt will be paid off in my lifetime.”
“But the point is… in ten years’ time if I’m lucky enough to still be alive then, it’ll be a much bigger budget,” he said.
“In the ideal world you’d have no debt at all but in the ideal world no household would be borrowing money for a house, no business would borrow money for their business…
“In the real world you actually have to borrow money to run your programs… is it sustainable? The credit rating agencies are saying yes.”
And indeed, ratings agency Moody’s has maintained SA’s credit rating at AA1, saying the debt burden “remains manageable within [the state’s] current rating”.
But it also warned debt could be poised to further spiral.
“Average spending growth is expected to register 1.9 per cent over the forward estimates and includes $361.6 million of savings measures,” Moody’s report states.
“With employee expenses representing 42 per cent of the state’s cost base, Moody’s expects these targeted savings could be difficult to achieve as key wage negotiations are concluded across health, education and emergency services.”
And, while Lucas’s borrowing zeal is currently “manageable”, Moody’s warns “additional debt funding could be required if the state does not meet its low expenditure targets or if there are slippages in its capital program”.
Moody’s Vice President and Senior Credit Officer John Manning said in a statement that “the state’s gross operating balance underpins its capacity to record larger fiscal deficits as it embarks on $11.9 billion in capital spending initiatives on infrastructure over the next four years, with the fiscal deficits largely debt funded”.
“At the same time, transfers from the Commonwealth represent over 57 per cent of the state’s budgetary revenue, reflecting its high dependence on Commonwealth transfers and the limited size of its economic base.”
The scepticism is shared by the Labor Opposition, which copped much ire from Lucas over its tenure in government over its own debt levels – which have now been shaded by the Liberals after less than two years in government.
Labor's total state debt will rise to $14b-largest in state's history! Labor's gift to your children and grandchildren!
— Rob Lucas (@Rob_Lucas) December 20, 2012
TurboTom trying to ignore the fact total state debt has exploded under Labor from just $3b to $13b(2017)! 6 deficits in 7 yrs will do that!
— Rob Lucas (@Rob_Lucas) February 9, 2015
This Age headline has a message for everyone-shows politicians in Greece don't understand debt problem! Hmmmm! pic.twitter.com/wT2bw0vbca
— Rob Lucas (@Rob_Lucas) February 14, 2015
Will total state debt increase even further than latest $13b estimate?Our children/grandchildren will be paying Labor's debt for decades
— Rob Lucas (@Rob_Lucas) December 19, 2012
Interest costs on Labor's record $13b debt will be more than $2 million a day-Labor's legacy for our children/grandchildren! # sabudget
— Rob Lucas (@Rob_Lucas) May 31, 2012
Opposition Leader Peter Malinauskas said Lucas, who is set to retire at the 2022 election, “is at the end of his parliamentary career… but it will be the rest of us trying to work out how to deal with his legacy of the highest debt increase that we’ve ever had in the state’s history”.
“There’s a real risk that its going to be future generations for decades to come that are left with the extra debt burden,” he said.
“The State Government hasn’t marginally increased debt – they’re rapidly increasing it, doubling it essentially within a four year period.”
And, he said, there was more to come, with only a fraction – $550 million – of the cost to build a new Women’s and Children’s Hospital by 2026 budgeted in the next four years.
Steve Whetton, Deputy Director of the SA Centre for Economic Studies, told InDaily he had concerns about the budget’s lack of strategic focus.
“Obviously government debt at the moment is really, really cheap, which significantly reduces the risk of increasing debt levels – although presumably eventually it will start to normalise again,” he said.
He said while the Commonwealth had brought forward a raft of grants and transfers, it had pushed back “much of its SA infrastructure spending proposals out of the forward estimates”, risking a “bit of a black hole in infrastructure spending if the state government didn’t spend over the next three to four years”.
However, he noted, “what its long term impact is will depend how well targeted the infrastructure spending is”.
“That’s probably the area where I have a bit of a concern,” he said.
“The State Government set up Infrastructure SA to give advice on where to invest, but it’s gone out with quite a lot of detail about infrastructure spending without actually having the work of Infrastructure SA being completed.
“They’ve gone out with what they’re doing before the independent body tells them what they should be doing… it seems odd to be so specific about what you’re doing before you know whether that’s the best thing to spend your money on.”
He said the Government’s infrastructure focus on roads “might not be what you’d identify as a really high priority”.
The budget, according to Whetton, is “broadly sensible but completely lacking in strategic focus”, from a Government that made a virtue of making SA a better place to do business.
“But then there’s a whole range of smaller measures that increase the cost of doing business, such as licensing fees and exploration costs,” he said.
“There doesn’t seem to be that sort of internal consistency… they’re not the sort of things you’d be doing if you’re trying to reduce cost of doing business in SA.”
Whetton said making business conditions harder merely to achieve budget savings was counter-productive as “overall whether it’s a $90 million surplus or a $90 million deficit doesn’t really matter”.
“It matters a lot to the politicians, but so long as spending doesn’t start exploding, a smaller surplus or smaller deficit doesn’t make much difference.”
Lucas told FIVEaa today the Liberal Government had changed its position on debt in recent years.
“This wasn’t something that we’ve just changed after the election – we took to the election two points of view, one which was different to the views that the Liberal Party had 30 years ago,” he said.
“That is, we had to balance our books on an annual basis, but we were prepared to accept debt was used for productive infrastructure, on building the North-South Corridor project, the Women’s and Children’s Hospital and very other important infrastructure projects.
“The change in the Liberal Party occurred between 2015 and 2018; we took a new position to the 2018 election, we were elected on that position, and we’ve maintained it.”
Credit rating agency Standard and Poor’s similarly maintained its rating for SA, but similarly linked the budget’s success to “the government’s commitment to introducing new savings measures targeted at improving the efficiency of community services”.
That, they said, was “critical to achieving the operating surplus, along with a few one-off increases to fees and charges that we expect to improve the operating balance by about $400 million across the forward estimates”.
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